Allowed

M/S Mspl Limited v. the State of Karnataka

Karnataka HC18 Jun 2021WP/14/2021

Case brief

AI extract

What is this about?

This writ petition challenged a circular directing mining lease holders to calculate monthly payments based on a fixed lumps-to-fines ratio rather than actual dispatched values. The High Court held that the specific terms of the Mine Development and Production Agreement govern payment calculations, overriding the general circular.

What did the court decide?

The circular dated 22nd June 2020 was quashed to the extent it sought to alter payment calculation methods defined in the agreement, and directions were issued for payment calculation as per Clause 7.

M/S Mspl Limited Vs the State of Karnataka — Contract and Commercial Disputes | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 18^TH DAY OF JUNE, 2021

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PRESENT

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THE HON’BLE MR.ABHAY S. OKA, CHIEF JUSTICE

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AND

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THE HON’BLE MR.JUSTICE SURAJ GOVINDARAJ

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WRIT PETITION NO.14 OF 2021 (GM-MM-S)

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BETWEEN:

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M/S. MSPL LIMITED CORPORATE OFFICE AT BALDOTA ENCLAVE ABHERAJ BALDOTA ROAD HOSAPTE - 583 203 BALLARI DISTRICT REP. BY ITS AUTHORISED SIGNATORY SRI AMARNATH T.S. S/O SRI SAINATHAN AGED ABOUT 42 YEARS

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... PETITIONER

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(BY SHRI ASHOK HARANAHALLI, SENIOR COUNSEL FOR SHRI M.M.SWAMY, ADVOCATE)

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AND:

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THE STATE OF KARNATAKA REP. BY ITS SECRETARY (MINES)

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DEPARTMENT OF COMMERCE & INDUSTRIES VIKAS SOUDHA, 1^ST FLOOR

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BENGALURU - 560 001

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THE DIRECTOR OF MINES & GEOLOGY KHANIJA BHAVAN, 5^TH CROSS

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RACE COURSE ROAD, BENGALURU - 560 001

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THE DEPUTY DIRECTOR

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MINES & GEOLOGY

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DEPARTMENT OF MINES & GEOLOGY

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HOSAPETE - 583 201, BALLARI DISTRICT

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... RESPONDENTS

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(BY SHRI S.S.MAHENDRA, ADDITIONAL GOVERNMENT ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER/CIRCULAR DATED 22.06.2020 VIDE ANNEXURE-M AND ETC.

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THIS PETITION COMING ON FOR DICTATING JUDGMENT THROUGH VIDEO CONFERENCING THIS DAY, CHIEF JUSTICE MADE THE FOLLOWING:

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ORDER

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With a view to appreciate the controversy involved, a

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brief reference to the facts of the case will be necessary.

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Bids were invited by the State of Karnataka for grant of mining lease for iron ore mines. One of the bidders was the petitioner. On 26^th October 2016, a letter of intent was issued to the petitioner by the Commissioner and Director of Mines and Geology Department of the State of Karnataka. Thereafter, various clearances were granted to the petitioner which are really not relevant for deciding the controversy in the petition. A grant order was issued on 1^st February 2020 (Annexure-L1). The grant order was subject to various terms and conditions. Even a copy of the Mining Lease Deed No.10 is annexed as Annexure-L2. A Mineral Development Production Agreement dated 27^th January 2021 was executed by and between the State Government and the petitioner, a copy of which has been placed on

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record by the State Government along with a memo dated 3^rd February 2021.

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The controversy in this petition under Article 226 of the Constitution of India is about the circular dated 22^nd June 2020 (Annexure-M) issued by the Director of the Department of Mines and Geology. The said circular is in turn based on a clarification issued by the letter dated 5^th /6^th September 2019 by the Director of Mines and Geology. The relevant part of the said circular reads thus:

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"Under Rule 8 of the Mineral (Auction) Rules, 2015, ratio of Lumps and Fines should be as per actuals and crushing of lumps is not permitted under any circumstances. This office vide letter cited at reference (2) has clarified with regard to the collection of value of mineral dispatch, which is as under:

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The grade and ratio mentioned in the Schedule C is notional to arrive at stamp duty, registration fee etc., hence, there is no relaxation or permissible % of difference that can to be allowed for collecting Value of the Mineral Dispatch. Hence, the Deputy Director, Hospete is hereby directed to collect the Value of Mineral Dispatch as per Rule 8 of the Mineral (Auction) Rules, 2015 and the timeto-time amendments thereon and in order to ensure the correctness may cross check with the IBM Plan and other details available in the field. It is expressly clarified that the ratio Lumps and Fines is the ratio after screening ROM and not by way of crushing the material in the mine into fines at any stage.

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In view of the above, it is informed to collect the amount equal to the value of mineral dispatched and remit the same to the Head of Account 0853-00-102-1-04 as informed in the circular under reference (1) and also reconcile earlier figures as per the clarification issued and as per the provisions of rules for collection of auction amount and royalty."

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The challenge in this petition is to the part of the circular which is quoted above.

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There is a statement of objections filed by the respondents in support of legality and validity of the impugned circular.

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The learned Senior Counsel appearing for the petitioner submitted that the amounts which are payable by the petitioner are in terms of the Mine Development and Production Agreement dated 27^th January 2020. He invited our attention to Clause No.7.1 of the said agreement. He stated that a similar provision has been made in the tender document. His submission is that the petitioner, as per Clause No.7.1.1, is required to make monthly payments on the basis of Final Price Offer and the monthly payment is to be computed on the basis of the value of minerals actually dispatched. He pointed out Clause No.7.1.2 of the said Mine Development and Production Agreement which

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specifically provides that the annual payments shall be made by the petitioner on the basis of Final Price Offer for the value of the shortfall quantity. It specifically provides that in the event the actual annual dispatch is lower than the minimum annual dispatch requirement in a financial year, the value of the resultant shortfall quantity shall be calculated in accordance with the formula laid down in Clause No.7.1.2. Inviting our attention to the impugned circular, he submitted that the circular seeks to make a departure from the provision of making monthly payment on the basis of the value of minerals actually dispatched. He would submit that the payments will have to be made by the petitioner as per the agreed terms and conditions and not as per the circular.

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The learned Additional Government Advocate invited

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our attention to the averments made in the statement of objections. He tried to rely upon the definition of "dispatch" incorporated in Section 3 in the Mines and Minerals (Development and Regulation) Act, 1957 by the Mines and Mineral (Development and Regulation) (Amendment) Act, 2021 (for short, "the said Amendment Act") which received the assent of the President of India on

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28^th March 2021. Inviting our attention to the contentions raised in the statement of objections, he submitted that the petitioner is required to maintain the percentage of lumps and fines as provided in the terms of the grant of mining lease which is 37.20% to 62.80%. He submitted that even while making dispatch, the petitioner is duty bound to maintain the said percentage and to make monthly payments in terms of the said proportion notwithstanding the actual quantity dispatched. He also invited our attention to Rule 8 of the Mineral (Auction) Rules, 2015 (for short, "the said Rules of 2015"). He submitted that the amount payable as per Rule 8 of the said Rules of 2015 must be computed by applying percentage quoted by the petitioner. He urged that the percentage quoted must be applied to the ratio of lumps and fines occurring in the leased area in their natural form. In short, his submission is that the payment which is to be made by the petitioner every month is required to be computed not on the basis of the actual value of the mineral dispatched but, on the basis of specified proportion of lumps and fines. He seeks to rely upon the decisions of the Apex Court in the case of RAM

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SUNDER RAM vs. UNION OF INDIA AND OTHERS¹ , N.MANI

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1 (2007) 13 SCC 255

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vs. SANGEETHA THEATRE AND OTHERS² , SOM DATT BUILDERS LIMITED vs. UNION OF INDIA AND OTHERS³ and BENGALURU DEVELOPMENT AUTHORITY vs.

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SUDHAKAR HEGDE AND OTHERS⁴ .

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We have carefully considered the submissions. It is necessary to make a reference to Rule 8 of the said Rules of 2015 which reads thus:

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" 8. Bidding parameters . - (1) The State Government shall specify in the tender document the minimum percentage of the value of mineral despatched, which shall be known as the "reserve price".

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(2) The value of mineral despatched shall be an amount equal to the product of,-

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(i) mineral despatched in a month; and

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(ii) sale price of the mineral (grade-wise and State-wise) as published by Indian Bureau of Mines for such month of despatch.

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(3) The bidders shall quote, as per the bidding parameter, for the purpose of payment to the State Government, a percentage of value of mineral despatched equal to or above the reserve price and the successful bidder shall pay to the State Government, an amount equal to the product of,-

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(i) percentage so quoted; and

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(ii) value of mineral despatched.

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2 (2004) 12 SCC 278

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3 (2010) 1 SCC 311

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4 (2020) 15 SCC 63

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(4) Where an area is being auctioned for more than one mineral, the percentage of value of mineral despatched as quoted by the successful bidder under sub-rule (3) shall be applicable for the purpose of payment to the State Government in respect of each such mineral.

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(5) If subsequent to grant of a mining lease, one or more new minerals are discovered, the percentage of value of mineral despatched as quoted by the successful bidder under sub-rule (3) shall be applicable for the purpose of payment to the State Government in respect of each such mineral."

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(underlines supplied)

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Sub-rule (1) of Rule 8 of the said Rules of 2015 requires the State Government to specify in the tender document the minimum percentage of the value of the mineral dispatched which will be known as "reserve price". Therefore, the percentage of value of minerals dispatched as may be specified will be the reserve price in the tender process. It is provided in sub-rule (3) of Rule 8 of the said Rules of 2015 that the bidder shall quote for the purpose of payment to the State Government, a percentage of value of mineral dispatched equal to or above the reserve price. It also provides that the successful bidder shall pay to the State Government an amount equal to the product of mineral dispatched in a month. Rule 8 of the said Rules of 2015 does not lay down any parameters for deciding how

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the value of minerals dispatched is to be computed for the purpose of making monthly payments.

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Though reliance was placed by the learned Additional Government Advocate on the Amendment Act which was brought into force after 28^th March 2021, the same will have no application as the said Mine Development and Production Agreement has been executed by and between the petitioner and the State Government on 27^th January 2021. Clause No.7 of the said agreement deals with payment of bid amount. For the sake of convenience, we have reproduce Clause Nos.7.1.1 and 7.1.2 of the Mine Development and Production Agreement which read thus:

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"7.1 Payment of bid amount

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7.1.1 The Successful Bidder shall make monthly payments on the basis of the Final Price Offer (the "Monthly Payment" ). The Monthly Payment shall be computed on the basis of the Value of Mineral Despatched.

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7.1.2 The Successful Bidder shall make annual payments on the basis of the Final Price Offer for the value of the shortfall quantity (the " Annual Payment "). In the event that the actual amount despatch is lower than the Minimum Annual Despatch Requirement in a financial year (financial year means from 1^st April to 31^st March), the value of the resultant shortfall quantity shall be calculated considering the following:

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(a) Treatment of shortfall quantity: the shortfall quantity shall be considered in the same ratio of lumps and fines, as the ratio arrived at based on the quantities of lumps and fines actually despatched in the financial year. This ratio shall be applied to the shortfall quantity to estimate the shortfall quantity of lumps and shortfall quantity of fines;

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(b) Grade of ore for shortfall quantity: the grade to be considered for the shortfall quantity of lumps and shortfall quantity of fines will be the respective weighted average grade of ore for lumps and fines, which further will be based on the quantities and corresponding grades of lumps and fines actually dispatched in the financial year; and

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(c) Price to be applied for shortfall quantity: the average of the monthly Average Sales Price (Karnataka State) published by IBM for the grade arrived at (b) above by lumps and fines for the financial year shall be considered for the purpose of calculation of payment related to Minimum Annual Despatch Requirement.

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Provided in case of no production during a financial year, lumps:fines ratio, as per despatches in the preceding year will be considered for treatment of shortfall quantity by lumps and fines, in such financial year. The weighted average grade of ore taken separately for lumps and fines in the preceding year's despatches will be respectively considered for the shortfall quantity of lumps and shortfall quantity of fines for the financial year with no production. However, price to be applied for the shortfall quantity shall be based on average of the monthly Average Sales Price (Karnataka State) published by IBM for the concerned grade for the financial year with no production for the purpose of calculation of payment related to Minimum Annual Despatch Requirement.

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Provided further in case of no production after the grant of mining lease, average grade in the geological report shall be considered with lumps to fines ratio at 50:50. Further, the price to be applied for the shortfall quantity shall be based on average of the monthly Average Sales Price (Karnataka State) published by IBM for the concerned grade for the financial year with no production for the purpose of calculation of payment related to Minimum Annual Despatch Requirement."

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(underline supplied)

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The bid amount is to be paid by the petitioner in the form of monthly payments and in the form of annual payments as specified in Clause Nos.7.1.1 and 7.1.2 respectively. We may also note here that in the Schedule-E to the said agreement, annual production requirements and the minimum annual dispatch requirements have been specified.

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As per Clause No.7.1.1 of the said Mine Development and Production Agreement, the monthly payment must be made by the petitioner computed on the basis of the value of minerals dispatched. Clause No.7.1.2 provides that the annual payments have to be made on the basis of the Final Price Offer for the value of shortfall quantity. Thus, in the event of the actual annual dispatch made during the course of the year being lower than the specified minimum annual

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dispatch requirements in a financial year, the value of the resultant shortfall quantity is required to be calculated as provided in Clause No.7.1.2 and is required to be paid by the petitioner as annual payment. On a conjoint reading of Clause Nos.7.1.1 and 7.1.2 of the said Mine Development and Production Agreement, it is very clear that these two clauses take care of payment of the bid amount by the petitioner. The monthly payments have to be made only on the basis of computation of value of minerals actually dispatched. While making yearly payment, adjustments are required to be made for ensuring that the petitioner meets the minimum annual dispatch requirements as specified. Thus, at the time of making annual payment, adjustment is required to be made to ensure that the petitioner maintains a ratio of lumps and fines as provided in the contract and also meets the requirement of specified minimum annual dispatch.

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Therefore, the circular cannot make a departure from the mode prescribed in the said Mine Development and Production Agreement and in particular, Clause No.7.1.1 about making monthly payment. The monthly payment has to be computed on the basis of the value of minerals

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dispatched. The State Government does not suffer any prejudice as the shortfall, if any, has to be paid by the petitioner at the time of making annual payment as provided in Clause No.7.1.2.

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After having perused the decisions of the Apex Court relied by the learned Additional Government Advocate, we find that none of them will help the respondents as the payment of the bid amount will be governed by the said Mine Development and Production Agreement as indicated in Clause Nos.7.1.1 and 7.1.2 thereof.

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Hence, we make it clear that what is provided in the impugned circular cannot override the express terms of the said Mine Development and Production Agreement which we have quoted above.

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Hence, we dispose of the petition by passing the following order:

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(i) We hold that the liability of the petitioner to pay the bid amount shall be in accordance with Clause Nos.7.1.1 and 7.1.2 of the said Mine Development and Production Agreement dated 27^th January

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2021 produced along with a memo dated 3^rd February 2021;

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(ii) We, therefore, direct that while calculating the liability of the petitioner to make monthly payments, the respondent shall not rely upon the impugned circular dated 22^nd June 2020;

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(iii) With the above directions, we dispose of the

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petition.

Sd/-

CHIEF JUSTICE

Sd/JUDGE

AHB

M/S Mspl Limited v. the State of Karnataka

Case brief

What is this about?

What did the court decide?

M/S Mspl Limited v. the State of Karnataka

Case brief

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