Supreme Court Dismisses Challenge to Royalty Computation Mechanism, Affirms Legislative Discretion and Directs Expedited Review on Compounding Impact

Court’s Decision

The Supreme Court, while dismissing the writ petition challenging the validity of royalty computation under Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (MCR, 2016) and Rule 45 of the Mineral Conservation and Development Rules, 2017 (MCDR, 2017), upheld the current policy as a legitimate exercise of executive and legislative powers. However, the Court directed the respondents to conclude the ongoing consultation regarding the compounding of royalties swiftly.

Facts

The petitioners, engaged in mining iron ore, challenged the validity of the “Sale Value” definition under Rule 38 of MCR, 2016, arguing that it leads to a “compounding” effect by including previous month’s royalty, District Mineral Foundation (DMF), and National Mineral Exploration Trust (NMET) contributions in the royalty calculation. They contended that this method imposes a cascading effect on royalties. Unlike coal, iron ore computations do not exclude prior royalty and DMF/NMET contributions, resulting in alleged discrimination.

Issues

1. Whether the royalty computation under Rule 38 of MCR, 2016 and Rule 45 of MCDR, 2017 violates Article 14 due to arbitrary compounding.
2. Whether exclusion of previous royalties and contributions for coal but not for other minerals is unreasonable and arbitrary.

Petitioner’s Arguments

The petitioners argued:

• The inclusion of prior month’s royalties and contributions in current calculations is “manifestly arbitrary,” leading to cascading charges.
• The differential treatment between coal and other minerals lacks a rational basis, violating Article 14.
• Precedents in Mineral Area Development Authority v. Steel Authority of India Limited and others were cited to assert royalty as a consideration that should not compound monthly.

Respondent’s Arguments

The Union of India argued:

• Rule 38 reflects policy decisions within executive discretion, with no statutory bar on royalty compounding.
• Adjusting the “sale value” for existing mining leases would reduce state revenue, as calculated during lease auctions.
• Policy on royalty computation should be respected by courts, as it involves intricate economic considerations beyond judicial expertise.

Analysis of the Law

The Court emphasized that policy matters, especially in economic regulation, are primarily within the legislative and executive domain. Judicial interference is limited to instances of clear illegality. The Court cited precedents underscoring judicial restraint in economic policy matters, reaffirming the separation of powers.

Precedent Analysis

The Court referenced cases like M.P. Oil Extraction v. State of M.P. and Balco Employees’ Union v. Union of India, highlighting the judiciary’s deference to legislative and executive policymaking in economic regulation, barring instances of manifest arbitrariness or clear violation of constitutional principles.

Court’s Reasoning

The Court reasoned that the royalty computation methodology falls within executive policy discretion and does not exceed statutory limits. The policy, while onerous, does not amount to arbitrariness that would warrant judicial intervention. Noting the acknowledged policy anomaly, the Court held that differential treatment between coal and other minerals is justifiable within the legislative domain.

Conclusion

The Court dismissed the writ petition, holding that the royalty mechanism under the MCR, 2016, and MCDR, 2017, does not violate Article 14. However, it directed the respondents to expedite consultations on the royalty compounding issue, citing the government’s responsibility to address legitimate concerns transparently.

Implications

The ruling underscores judicial restraint in economic policy matters and affirms the validity of royalty calculations for non-coal minerals, despite industry concerns. The judgment may prompt legislative review of mineral royalty structures, particularly in light of broader sectoral reform discussions.