The Supreme Court has ruled that buyers of iron ore sold through a court-monitored e-auction cannot avoid paying an increased royalty merely because their purchase agreement was signed before the royalty revision came into force. The Court held that statutory changes in royalty rates prevail over contractual arrangements when the mineral is removed after the revised rate becomes applicable.
Background of the Case
The dispute arose from iron ore auctions conducted under the supervision of a Monitoring Committee established pursuant to directions of the Supreme Court in mining-related proceedings concerning Karnataka.
M/s BMM Ispat Ltd. successfully bid for several lots of iron ore in 2014. At the time, the applicable royalty rate was 10% of the mineral value. The company paid the bid amount along with royalty and other charges as specified in the auction documents.
However, before the entire quantity of iron ore was transported from the stockyards, the Central Government amended the royalty rates with effect from September 1, 2014, increasing the royalty on iron ore from 10% to 15%.
Subsequently, authorities deducted the additional royalty amount from the company's security deposit. Challenging this deduction, the company approached the Karnataka High Court, which ruled in its favour and held that charging royalty above the rate applicable on the auction date would be unjust.
Hearing the appeal filed by the Director of Mines and Geology, the bench of Justice Sanjay Karol and Justice N. Kotiswar Singh examined Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957.
The bench noted that royalty is a statutory levy linked to the removal or consumption of minerals and that the Central Government has the authority to revise royalty rates through notification.
Justice Sanjay Karol, writing for the bench, observed that contractual provisions cannot override a later statutory amendment.
“The contractual provision would have to give way to a statutory amendment,” the Court stated while examining the effect of the revised royalty notification.
The Court also rejected the company's argument that the royalty rate stood frozen on the date of auction acceptance. According to the bench, the Supreme Court's earlier directions referred to the royalty rate "applicable" at the relevant time and did not permanently fix the rate at 10%.
The judges further observed that royalty becomes payable when minerals are dispatched or removed. Therefore, if transportation took place after the revised rate became effective, the enhanced royalty would apply.
The Supreme Court concluded that the authorities were justified in recovering the additional 5% royalty from the security deposit because the iron ore was transported after the royalty revision came into force.
“The payment is to be made on the date of the movement of the minerals,” the bench observed, adding that a contract entered into before the statutory change could not limit the effect of the revised law.
Allowing the appeal, the Court set aside the Karnataka High Court's judgment and upheld the deduction of the enhanced royalty amount from the respondent company's security deposit.
Pending applications were also disposed of.
