Supreme Court Allows Transportation of Mined Ore Post Dues Payment: State of Odisha vs. Jindal Steel and Power Ltd. (2020)

Introduction

Date of the Judgment: 30 January 2020

Citation: Civil Appeal No. 850 of 2020 (Arising out of Special Leave Petition (Civil) No. 23644 of 2016)

Judges: S. A. Bobde, CJI., B.R. Gavai, J., Surya Kant, J.

Can a state government prevent the transportation of legally purchased, processed, and royalty-paid iron ore, simply because it is located within the lease area of a mining company that lacks environmental clearance? The Supreme Court of India addressed this question in a recent case involving the State of Odisha and Jindal Steel and Power Ltd. (JSPL). The court had to decide whether the state could stop JSPL from transporting iron ore that it had purchased from Sarda Mines Pvt. Ltd. (SMPL), even though JSPL had paid all necessary royalties and had the required permits. The judgment was delivered by a three-judge bench comprising Chief Justice S.A. Bobde and Justices B.R. Gavai and Surya Kant.

Case Background

Jindal Steel and Power Ltd. (JSPL), an industrial entity involved in steel production, regularly procures raw materials, including iron ore. JSPL had an arrangement with Sarda Mines Pvt. Ltd. (SMPL) to purchase iron ore. SMPL would mine and process the ore into lump ores and fines, and then hand over possession to JSPL within SMPL’s lease area. JSPL would then store the processed ore at a dispatch point within SMPL’s lease area, pending transportation to JSPL’s plants in Odisha and Chhattisgarh. The State of Odisha had previously approved this arrangement, subject to royalty payments at the highest rate.

This arrangement continued until March 31, 2014, when the Deputy Director of Mines, Joda, Odisha, issued a letter stating that SMPL’s environmental clearance for enhanced production had expired. Consequently, ‘transit permits’ for transporting the processed iron ore from the dispatch point to JSPL’s plants were denied.

JSPL argued that they had paid the necessary royalties on the iron ore and that the stocks at the dispatch point belonged to them, not SMPL. They made several requests for permission to transport the processed minerals. The Deputy Director of Mines recommended granting transport clearances to JSPL. However, the Director of Mines communicated to the Commissioner-cum-Secretary, Steel & Mines Department, that the material was within SMPL’s lease area, and its transportation would be considered part of mining operations, which could not proceed without proper statutory clearances. As a result, the State of Odisha rejected JSPL’s requests through letters dated May 23, 2014, and June 26, 2014.

JSPL then approached the High Court, seeking to quash the state’s letters and requesting a writ of mandamus to direct the State of Odisha to grant permission for transporting the processed ore from the dispatch point within SMPL’s lease area to JSPL’s plants.

JSPL contended that SMPL had obtained clarification from the Ministry of Environment and Forests (MOEF) on January 15, 2015, stating that SMPL could operate its mine and produce up to 4 million tons of iron ore (lumps) for 20 years from September 22, 2004. JSPL argued that since SMPL had valid environmental clearance, there should be no objection to JSPL transporting the iron ore. The State of Odisha contested this, citing the Supreme Court’s interim directions on May 16, 2014, which prohibited “mining activities/operations,” including transportation of mined ore.

JSPL argued that the Supreme Court’s direction only prohibited SMPL from resuming mining operations, not JSPL from transporting already mined, purchased, processed, and royalty-paid minerals. They referred to the definition of “mining operation” under Section 3(d) of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDRA), which they claimed did not include transportation of minerals. JSPL argued that once the ore was mined and sold by the leaseholder, the Odisha Minerals (Prevention of Theft, Smuggling and Illegal Mining and Regulation of Possession, Storage, Trading and Transportation) Rules, 2007 (OMPTS Rules) would apply. As a buyer with a license to transport under OMPTS Rules and having paid all royalties, JSPL argued they should not be stopped from transporting the ore just because it was within SMPL’s lease area, especially when SMPL lacked environmental clearance.

The High Court agreed with JSPL, noting that the Supreme Court’s interim directions prohibited “mining operations,” which, as per Section 3(d) of MMDRA, meant “winning” of minerals. Relying on the Constitutional Bench decision in The Bihar Mines Ltd. v. Union of India, the High Court interpreted “mining operations” to include only processes necessary to extract minerals from mines. Therefore, the High Court held that the transportation of already extracted minerals would not be stopped by the Supreme Court’s interim directions. The High Court found no reason to stop JSPL from transporting the iron ore, given that SMPL had environmental clearance, permission to sell iron ore to JSPL, and that JSPL had paid the required royalties. Consequently, the High Court quashed the state’s letters and directed the authorities to grant transport permission to JSPL.

Timeline:

Course of Proceedings

JSPL, aggrieved by the State of Odisha’s refusal to grant transport permits, approached the High Court seeking to quash the state’s letters and requesting a writ of mandamus to allow the transportation of the processed ore. The High Court allowed JSPL’s writ petition, quashing the state’s letters and directing the authorities to grant transport permission. The State of Odisha then filed a special leave petition in the Supreme Court, challenging the High Court’s order.

Legal Framework

The case revolves around the interpretation of “mining operations” as defined in Section 3(d) of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDRA). Section 3(d) of the MMDRA defines “mining operations” as:

“any operations undertaken for the purpose of winning any mineral”

The High Court also relied on the Constitutional Bench decision in The Bihar Mines Ltd. v. Union of India, which interpreted “mining operations” to include only the processes necessary to extract minerals from mines.

The Odisha Minerals (Prevention of Theft, Smuggling and Illegal Mining and Regulation of Possession, Storage, Trading and Transportation) Rules, 2007 (OMPTS Rules) were also relevant, as JSPL argued that once the ore was mined and sold by the mining leaseholder, the OMPTS Rules would come into force, and as a buyer with a license to transport under OMPTS Rules, they should not be stopped from transporting the ore.

Clause 5 of Part-IX of Form K (Model Form of Mining Lease under Rule 31(1) of Mineral Concession Rules, 1960) was also cited by JSPL, which allows the lifting and transportation of minerals up to six months after the expiry of the lease.

Arguments

Arguments by the State of Odisha:

• The State argued that the sale of mined ore by SMPL does not mean that the MMDRA ceases to apply.
• They contended that approvals under the OMPTS Rules do not negate the need for clearances under other statutes.
• The State argued that JSPL’s title over the goods cannot be superior to SMPL’s title, and that the sale does not regularize any illegalities or dispense with the need to comply with the law.
• They claimed that the High Court misinterpreted the MOEF’s letter regarding Environmental Clearance, which was only for 4 million tons per annum (MPTA), while SMPL had extracted minerals in excess of this limit.
• The State argued that at least some of the ore sold to JSPL came from unauthorized excess production, and therefore, JSPL could not be said to have “validly procured” the materials.
• They argued that “mining operation” should be interpreted broadly to include transportation of materials within the leasehold area, citing the Supreme Court’s observations in Samaj Parivartana Samudaya v. State of Karnataka.
• The State contended that JSPL’s prayer was barred by the Supreme Court’s interim directions dated May 16, 2014, which prohibited “mining operations,” including transportation.
• The State underscored the potential for a loophole to evade environmental legislation if the sale of minerals would cease the application of MMDRA and instead only the OMPTS Rules would apply.

Arguments by Jindal Steel and Power Ltd. (JSPL):

• JSPL argued that they were not seeking permission for crushing or processing the iron ore, but only for transporting the ore that had already been legally procured, processed, and stored at the dispatch point before the expiry of SMPL’s environmental clearance.
• They contended that transportation is not part of “mining operations” for which environmental clearances are required.
• JSPL highlighted the State’s failure to raise objections to transportation of minerals in other similar cases.
• They cited Clause 5 of Part-IX of Form K (Model Form of Mining Lease) to argue that lifting and transportation of minerals is permissible up to six months after the expiry of the lease, demonstrating the intention to protect the lessee’s right to excavated minerals.
• JSPL argued that the Supreme Court’s interim directions on 16.05.2014, only prohibited SMPL from resuming mining operations, and not JSPL from transporting the mineral already mined, purchased, processed and royalty paid upon.
• JSPL placed reliance upon the expression “mining operation” as defined under Section 3(d) of the Mines and Minerals (Development & Regulation) Act, 1957 (“MMRDA”), which did not include transportation of minerals.
• JSPL contended that as soon as the ore was mined and sold by the mining leaseholder, the OMPTS Rules would come into force.
• JSPL contended that being a buyer who possessed necessary license to transport under OMPTS Rules and who also had paid all necessary royalties, could not be stopped from transporting its ore merely because it lay in the leasehold premises of SMPL on the ground that the latter did not have a valid environmental clearance.

Arguments by Intervenors (ICICI Bank and State Bank of India):

• The banks argued that they had granted substantial loans to JSPL, part of which was used to purchase iron ore from SMPL.
• They contended that the iron ore stocks were hypothecated with the consortium of banks.
• The banks highlighted their financial exposure in the case and sought directions to allow JSPL to transport the iron ore and deposit the proceeds into a working capital account.

Issues Framed by the Supreme Court

The Supreme Court did not frame any specific issues for determination in this case. However, the core issue that was considered by the court was:

• Whether JSPL is entitled to lift and transport the iron ore from SMPL’s lease area to its plants given the circumstances of the case.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

Cases Relied Upon:

• The Bihar Mines Ltd. v. Union of India [AIR 1967 SC 887] – The Supreme Court of India, this case was relied upon by the High Court to interpret “mining operations” as only including processes necessary to extract minerals from mines.
• Samaj Parivartana Samudaya v. State of Karnataka [(2013) 8 SCC 154] – The Supreme Court of India, this case was cited by the State of Odisha to argue that “mining operations” should be interpreted broadly to include transportation of materials within the leasehold area.

Legal Provisions Considered:

• Section 3(d) of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDRA) – This section defines “mining operations.”
• The Odisha Minerals (Prevention of Theft, Smuggling and Illegal Mining and Regulation of Possession, Storage, Trading and Transportation) Rules, 2007 (OMPTS Rules) – These rules were cited by JSPL to argue that once the ore was mined and sold, these rules would apply.
• Clause 5 of Part-IX of Form K (Model Form of Mining Lease under Rule 31(1) of Mineral Concession Rules, 1960) – This clause allows lifting and transportation of minerals up to six months after the expiry of the lease.

Judgment

How Each Authority Was Viewed by the Court:

• The Bihar Mines Ltd. v. Union of India [AIR 1967 SC 887]*: The High Court relied on this case to interpret “mining operations” narrowly. The Supreme Court did not explicitly rely on this case in its final order.
• Samaj Parivartana Samudaya v. State of Karnataka [(2013) 8 SCC 154]*: The State of Odisha cited this case to argue for a broader interpretation of “mining operations.” The Supreme Court did not explicitly discuss or rely on this case in its final order.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the subsequent developments in the case, particularly the undertaking given by SMPL to comply with the court’s directions in the Common Cause case. The court focused on the fact that SMPL had agreed to pay its dues and comply with all necessary regulations, thus addressing the State’s concerns about illegal mining and environmental violations. The court also considered the financial implications for JSPL and the banks involved, seeking to facilitate the smooth transport of the iron ore while ensuring that the proceeds were properly accounted for.

Fact:Law Ratio:

The court’s decision was primarily driven by the factual matrix of the case, especially the undertaking given by SMPL and the financial implications for JSPL and the banks. The legal aspects, such as the interpretation of “mining operations” and the applicability of various rules, were secondary to the factual developments.

The Supreme Court did not delve into a detailed analysis of the legal arguments presented by both sides. Instead, it focused on the changed circumstances, particularly the undertaking given by SMPL. The Court noted that the dispute had essentially been resolved by SMPL’s commitment to comply with the Court’s directions in the Common Cause case. This pragmatic approach allowed the Court to dispose of the appeal without addressing the complex legal issues raised, such as the interpretation of “mining operations” and the applicability of various rules.

The Court’s decision was primarily driven by the need to ensure compliance with its previous orders and to facilitate the smooth functioning of the steel industry, while also protecting the financial interests of the banks involved. The legal issues were not explicitly addressed due to the changed factual scenario.

The court did not explicitly discuss alternative interpretations or legal principles. The decision was based on the specific facts of the case and the subsequent developments. The court’s focus was on resolving the immediate dispute by accepting SMPL’s undertaking and allowing JSPL to transport the ore, subject to compliance.

The Supreme Court disposed of the appeal by directing:

• SMPL must pay its dues and give the requisite undertaking by February 29, 2020, after which it can resume mining operations.
• Once SMPL complies, JSPL can lift the already mined, processed, and royalty-paid iron ore and transport it to its plants. The proceeds must be deposited into a Trust & Retention Account under the custody of the State Bank of India.
• Failure to comply with these directions would render any such sale legally void.

“In light of parties having restricted their contentions and our consequent analysis to the framework of I.A. No. 187580 of 2019 (moved for directions by JSPL), we dispose of all the I.As. as well as the Civil Appeal with the following directions:”

“SMPL must pay its dues and give the requisite undertaking by 29 February, 2020 post which alone it shall be at liberty to resume its mining operations as per our order dated 15.01.2020.”

“Once SMPL complies with direction no. (i) above, JSPL can lift the already mined, processed and royalty paid Iron Ore lying at the dispatch point within SMPL’s premises and transport these stocks to its plants across the country. The proceeds thereof must be deposited with the Trust & Retention Account under the custody of the State Bank of India.”

Key Takeaways

• The Supreme Court allowed JSPL to transport its iron ore, provided SMPL complied with the court’s directions to pay dues and give an undertaking.
• The decision highlights the importance of compliance with court orders and regulatory requirements in the mining sector.
• The case underscores the need for a balanced approach that considers both environmental concerns and the economic interests of stakeholders.
• Future cases involving similar issues may focus on the specific facts and circumstances, particularly any undertakings given by the parties.

Directions

The Supreme Court gave the following directions:

1. SMPL must pay its dues and give the required undertaking by February 29, 2020, after which it can resume mining operations as per the court’s order dated 15.01.2020.
2. Once SMPL complies with the above direction, JSPL can lift the already mined, processed, and royalty-paid iron ore and transport it to its plants. The proceeds must be deposited with the Trust & Retention Account under the custody of the State Bank of India.
3. Failure to comply with these directions would render any such sale legally void.

Development of Law

The ratio decidendi of this case is that a buyer of already mined and processed ore can transport the ore from the seller’s lease area, provided the seller complies with all necessary regulations and court directions. This decision does not fundamentally alter the existing legal positions but provides a practical solution in the context of the specific facts of the case. The court did not delve into a detailed analysis of the legal arguments presented by both sides.

Conclusion

In conclusion, the Supreme Court disposed of the appeal by allowing JSPL to transport its iron ore, subject to SMPL’s compliance with the court’s directions to pay dues and give an undertaking. The decision was primarily based on the subsequent developments in the case, particularly SMPL’s undertaking, and did not delve into a detailed analysis of the legal issues raised. The court’s pragmatic approach aimed to balance environmental concerns with the economic interests of the stakeholders involved.