Allowed

M/S Rajesh Sharma v. State of U P and 2 Others

Allahabad HC19 Feb 2020WRIC/16183/2019

Case brief

AI extract

What is this about?

The High Court quashed an order cancelling a mining lease and forfeiting security money due to violation of natural justice. The court held that the show cause notice did not mention forfeiture, and rules permitted recovery of dues as arrears of land revenue with interest, not forfeiture.

What did the court decide?

Quashed the order dated 25.03.2019 cancelling the lease and forfeiting security, and the recovery certificate dated 05.04.2019.

M/S Rajesh Sharma Vs State of U P and 2… — Contract and Commercial Disputes | Allahabad HC (2020)

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Court No. - 4 Case :- WRIT - C No. - 16183 of 2019 Petitioner :- M/S Rajesh Sharma Respondent :- State Of U P And 2 Others Counsel for Petitioner :- Amit Upadhyay Counsel for Respondent :- C.S.C.

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Hon'ble Bala Krishna Narayana,J. Hon'ble Shamim Ahmed,J.

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(As per Hon'ble Shamim Ahmed, J.)

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The present writ petition has been filed by the petitioner with the

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following prayer:-

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(A) Issue a writ, order or direction in the nature of certiorari quashing the part of the order dated 25.03.2019 passed by the respondent no.3 only to the extent of forfeiture of the security amount instead of adjusting the same against the dues of the unpaid quarterly lease amount, recovery certificate dated 05.04.2019 issued by the respondent no.2.

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(B) Issue a writ, order or direction in the nature of mandamus of directing the respondents adjust the security amount deposited by the petitioner to the outstanding quarterly lease amount of the lease deed.

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(C) Issue any other writ, order or direction which this Hon'ble Court may deem fit and proper in the circumstances of the case.

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(D) Award cost if the petition to the petitioner.

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Heard Sri Amit Upadhyay, learned counsel for the petitioner and Smt. Archana Singh, learned Additional Chief Standing Counsel representing all the respondents.

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Facts of the case as argued by learned counsel for the petitioner are that as per New Government Policy-2017, a Government order for settlement of lease under Chapter-IV by e-tender/e-auction dated 14.8.2017 was issued and the Uttar Pradesh Miner Minerals (Concession) (43 amendment) Rules, 2017 (hereinafter referred to as "the Amended Rules, 2017") framed thereunder. Mining leases were to be granted as per the procedure prescribed under the statutory Rules and the Government Order dated 14.8.2017. In pursuance of the same, an advertisement notice dated 05.09.2017 was issued by the District

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Magistrate, Kaushambi for settlement of mining leases of Sand and mourram under the Amended Rules 2017 in the District Kaushambi for several mining blocks by e-tendering.

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Learned counsel for the petitioner further argued that the petitioner after completing necessary formalities, submitted an application for the grant of mining lease for mining in village Yamunapura, Tehsil Manjhanpur, District Kaushambi from the Yamuna river, measuring 24.28 hectares for a quantity of 4,80,000 cubic meers per year. In this regard, the petitioner has given a bid of Rs.271/- per cubic meter against the reserve price of Rs.150/- per cubic meter which being the highest. The same was duly accepted by the District Magistrate, Kaushambi/respondent No.2 vide order dated 30.11.2017 and thereafter, a letter of intent dated 04.12.2017 was issued to the petitioner. After issuance of aforesaid letter of intent, the petitioner had deposited requisite amount namely security money and first installment of the annual lease amount. Subsequently, a lease deed was executed and registered in favour of the petitioner on 17.02.2018 for a period of five years, i.e., from 17.02.2018 to 16.02.2023.

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It is submitted in paragraph 12 of the Writ Petition that after demarcation, when the petitioner entered in his mining area and tried to start the mining operation then he found that entire lease area of the petitioner has been submerged into the river and no mining is possible and only a small portion of the area was available for mining. In this regard, petitioner moved a detailed representation before the District Magistrate, Kaushambi dated 31.12.2018 stating therein that no mining is possible in the area allotted to the petitioner as there is prohibition of the mining in the water level and hence under the compelling circumstances, the petitioner requested the District Magistrate, Kaushambi for cancellation/surrender of mining lease of the petitioner.

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It is further submitted in paragraph no.13 of the writ petition that surprisingly, instead of taking any action on the representation of the

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petitioner and making the entire area available to the petitioner for carrying out mining operation, the Mines Officer, Kaushambi issued demand notice dated 19.02.2019 to the petitioner for demanding installments of lease amount along with interest without addressing the issue of the petitioner regarding non-availability of the complete mining area allotted to the petitioner.

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It is further contended that respondent No.2/District Magistrate, Kaushambi without inspecting the spot and without considering the grievances raised in the representation of the petitioner and without giving any show cause notice or any opportunity of personal hearing to the petitioner, passed the order dated 15.03.2019 which has communicated by ADM (F & R) order dated 25.03.2019 impugned in the writ petition giving reference of that order cancelling the mining lease allotted to the petitioner by forfeiting the security amount on the ground of non deposition of the quarterly installment of the lease amount treating the same as the breach of the lease condition and rules and thereafter a recovery citation dated 05.04.2019 was issued. Learned counsel for the petitioner submitted that in spite of demand made, the copy of the order dated 15.03.2019 was not given to the petitioner.

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It is further argued by learned counsel for the petitioner that the impugned order passed by the respondent no.2-District Magistrate, Kaushambi is arbitrary, unjust, illegal and is against the Rule 58 of U.P. Minor Mineral (Concession) Rules, 1963 (hereinafter referred to as the Rules 1963) and also against the provisions of Clause 19(3) of the Government Order dated 14.08.2017 which does not permit the forfeiture of the security money deposited by the lessee/petitioner and only provides the realization of the said amount as arrears of land revenue along with the interest prescribed and the same is liable to be set aside by this Hon'ble Court due to the following reason:-

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(i) No opportunity of personal hearing was given to the petitioner before passing the order impugned by which not only the lease of

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the petitioner was cancelled but also the security amount was also forfeited.

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(ii) The show cause notice was issued to the petitioner by Mines Officer, Kaushambi but the order impugned has been passed by the District Magistrate.

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(iii) Nothing has been stated in the show cause notice regarding the cancellation of the mining lease of the petitioner and also regarding forfeiting the security amount deposited by the petitioner is in complete violation of principles of natural justice. (iv) The impugned order has been passed in violation of the Rule 58 of the Rules, 1963 wherein it has been provided that if the lessee will not pay the royalty or dead rent then after giving the notice, the lease shall be determined and the said amount shall be realized as arrears of land revenue along with interest prescribed under sub-rule (2), as such while passing the order under Rule 58 of the Rules, 1963 for cancelling the lease deed, security amount deposited by lessee could not be forfeited. The impugned order is also in violation of the Clause 19(3) of the Government Order dated 14.08.2017 which does not provide forfeiture of the security amount on the ground of non deposition of the lease amount.

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On the other hand, it is contended by Smt.. Archana Singh, learned Additional Chief Standing Counsel, that since terms and conditions contained in the lease deed were violated by the petitioner, therefore, the impugned order was rightly passed by the respondent No.2-District Magistrate, Kaushambi. It is further contended by her that the order impugned in the present writ petition is absolutely perfect and valid order does not warrant any interference specially under Article 226 of the Constitution of India.

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Heard learned counsel for the parties and perused the record. With the consent of learned counsel for the parties, this writ petition is

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disposed of finally at the admission stage itself.

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The petitioner has assailed the order dated 25.03.2019 passed by ADM (F & R) and recovery certificate dated 05.4.2019 passed by respondent No.2/District Magistrate, Kaushambi by which reply submitted by the petitioner was rejected and the lease deed was cancelled and an order was passed directing the petitioner to deposit a sum of Rs.3,57,72,000/- towards installments of lease amount along with 18% interest by forfeiting the security money deposited by the petitioner.

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From perusal of the record it is clear that before passing the impugned order no opportunity of hearing was given to the petitioner. It is also clear from perusal of the record that notices were issued by the Mines Officer, Kaushambi but the impugned order was passed by the respondent No.2, i.e. District Magistrate, Kaushambi. Apart from the same, it is also clear that although nothing is contained in the show cause notice regarding forfeiting the security money of the petitioner or forfeiting the security amount but while passing the order impugned, that amount has been directed to be recovered from the petitioner.

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The order impugned is in two parts:-

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(i) recovery against the petitioner and cancelling the lease deed.

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(ii) Forfeiting the security amount deposited by the petitioner.

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Insofar as the first part is concerned, it is clear from the record that the notices were issued to the petitioner by the Mines Officer, Kaushambi but the order was passed by District Magistrate, Kaushambi, in this view of the matter, we are of the opinion that the order passed by the District Magistrate, Kaushambi is complete in violation of principles of natural justice.

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Insofar as the forfeiting the security money of the petitioner in pursuance of the impugned order, we find that the respondents have proceeded on the basis of a show cause notice. Nothing has been stated

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in the show cause notice regarding forfeiting the security money deposited by the petitioner.

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Learned Standing Counsel has not been able to refute this fact on record.

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In our opinion, the issue which was not raised even in the show cause notice, therefore, could not be made the basis for forfeiting the security money of the petitioner.

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In our view, as per Rule 58 of the Rules, 1963 and Clause 19(3) of the Government Order dated 14.08.2017 which clearly says that if the lessee will not pay the royalty or dead rent then after giving the notice the lease shall be determined and the said amount shall be realized as arrears of land revenue along with interest prescribed under sub-rule (2), as such while passing the order under Rule 58 of the Rules 1963 for cancellation of lease deed, security amount deposited by the lessee/petitioner could not be forfeited. In this regard, Rule 58 of the Rules 1963 is being quoted below :-

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Consequences of non payment of royalty rent or other dues;

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(1) The State Government or any officer authorized by it in this behalf may determine the mining lease after serving a notice on the lessee to pay within thirty days of the receipt of the notice any amount due or dead rent under the lease including the royalty due to the State Government if it was not paid within fifteen days next after the date fixed for such payment. This right shall be in addition to and without prejudice to the right of the State Government to realize such dues form the lessee as arrears of land revenue.

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(2) Without prejudice to the provisions of these rules, simple interest at the rate of 18 per cent per annum may be charged on any rent, royalty, demarcation fee and any other dues under these rules, due to the State Government after the expiry of the period of notice under sub-rule (1).

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Similarly as per the Government Order dated 14.08.2017 the consequence of non deposit of the lease amount/royalty in time by the

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lessee has been clearly provided in Clause 19(3) which clearly says that if the lease amount will be not deposited by the lessee within time then same shall be recovered along with the interest as provided under the Rules 1963 and the forfeiture of the security money has not been permitted in the said Government Order on the ground of non deposition the lease amount.

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It is further observed that in the impugned order, the District Magistrate, Kaushambi has treated the non deposit of the royalty / lease amount in time as violation of the condition of the lease deed and rule by the petitioner which is absolutely baseless as consequences of the non deposition of the lease amount/royalty in time has been provided under Rule 58 of the Rules 1963 and Clause 19(3) of the Government Order dated 14.08.2017 which does not permit the forfeiture of the security money deposited by the lessee/petitioner and only provided the realization of the said amount as arrears of the land revenue along with the interest prescribed. Security amount deposited by the petitioner was liable to be adjusted towards the dues/liability fixed upon the petitioner after the cancellation of the lease deed vide order dated 25.03.2019.

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The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show cause notice is to make the notice understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the notice is able to point out that proposed action is not warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily explained. When it comes to security amount, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. In the case of

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Gorkha Security Services Vs. Government (NCT of Delhi) and others (2014) 9 SCC 105, the Supreme Court was pleased to hold that it is incumbent on the part of the department to state in show cause notice that the competent authority intended to impose such a penalty of forfeiture of the security amount, so as to provide adequate and meaningful opportunity to show cause against the same. Relevant paragraph namely paragraph 27 of the aforesaid judgement is quoted below:-

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"27. We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show cause notice that the competent authority intended to impose such a penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show cause notice, it can be clearly inferred that such an action was proposed, that would fulfill this requirement. In the present case, however, reading of the show cause notice does not suggest that noticee could find out that such an action could also be taken. We say so for the reasons that are recorded hereinafter."

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In the case of Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal (1975) 1 SCC 70, it was held by the Supreme Court that blacklisting has the affect of preventing a person from the privilege and advantage of name into relationship with the Government for purpose of aim. It was held by the Supreme Court in the aforesaid case that the fundamentals of fair play require that a person concerned should be given an opportunity to represent his case. Paragraphs 12 and 20 of the said judgment is quoted below :-

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" 12. Under Article 298 of the Constitution the executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the

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laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality.

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Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."

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Again in the case of Raghunath Thakur Vs. State of Bihar [(1989) 1 SCC 229] the aforesaid principles was reiterated in the following manner: (SCC p. 230, para 4).

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"4. ........ But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order insofar as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law.........."

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Thus, there is no dispute about the requirement of serving showcause notice. We may also hasten to add that once the show-cause notice is given and opportunity to reply to the show-cause notice is

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afforded, it is not even necessary to give an oral hearing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engg. [Patel Engg. Ltd. v. Union of India, (2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445]."

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In the case of M/s Mahabir Auto Stores & Ors. Vs. Indian Oil Corporation Ltd. (1990) 3 SCC 752 it was held by the Supreme Court that arbitrariness and discrimination in every matter is subject to judicial review. Paragraph 11 of the aforesaid judgement is quoted below :-

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"It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in M/s Radha Krishna Agarwal & Ors. v. State of Bihar & Ors., [1977] 3 SCC 457. 1t appears to us, at the outset, that in the facts and circumstances of the case, the respondent-company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual par- ties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. M/s Radha Krishna Agarwal v. State of Bihar, (supra) at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitu- tion in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether heating is necessary

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and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the(1975) 1 SCC 70. State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu & Anr., [1974] 4 SCC 3; Maneka Gandhi v. Union of India & Anr., [1976] 1 SCC 248; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors., [1981] 1 SCC 722; R.D. Shetry v. International Airport Authority of India & Ors., [1979] 3 SCC 1 and also Dwarkadas Marlaria and sons v. Board of Trustees of the Port of Bombay, [1989] 3 SCC 293. It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case."

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In view of the law laid down by the Hon'ble Apex Court and the case narrated by the learned counsel for the petitioner, we consider it fit to interfere in the impugned order on the ground that there is a complete violation to follow due process of law and the impugned order was passed in violation of the principles of natural justice, therefore, the impugned order dated 25.03.2019 passed by ADM (F & R), Kaushambi

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and the recovery certificate dated 05.04.2019 passed by respondent no.2-District Magistrate, Kaushambi is not sustainable in the eyes of law and is liable to be quashed.

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We, accordingly, quash the impugned order dated 25.03.2019 passed by ADM (F & R), Kaushambi and the recovery certificate dated 05.04.2019 passed by respondent no.2-District Magistrate, Kaushambi and allow the present writ petition. We further clarify that in case the respondents do choose to initiate fresh proceedings against the petitioner, we leave it open to them to do so subject to the observation that the proceedings if initiated shall be undertaken in accordance with law and the observations appearing herein above after affording opportunity of personal hearing to the petitioner.

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Order Date :- 19.02.2020 SFH/P.S. Parihar

M/S Rajesh Sharma v. State of U P and 2 Others

Case brief

What is this about?

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M/S Rajesh Sharma v. State of U P and 2 Others

Case brief

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