Supreme Court Denies Renewal of Mining Leases: Odisha Govt. vs. Bharat Process & Mechanical Engineers Ltd (2024)

Date of the Judgment: May 17, 2024

Citation: 2024 INSC 440

Judges: Sanjiv Khanna, J., Dipankar Datta, J.

Can a company in liquidation have its mining leases renewed? The Supreme Court of India recently addressed this complex issue, involving the Government of Odisha, Bharat Process & Mechanical Engineers Limited (BPMEL), and other parties. The core question revolved around the renewal of mining leases originally granted to Bird and Company Limited, which were later transferred to BPMEL, a company that subsequently went into liquidation. The Supreme Court, in this judgment, has set aside the order of the High Court of Calcutta which had directed the formation of a High-Powered Committee to decide on the renewal of the mining leases. The bench comprised Justices Sanjiv Khanna and Dipankar Datta, with the judgment authored by Justice Sanjiv Khanna.

Case Background

The case revolves around three mining leases for Kolha-Roida, Thakurani, and Dalki, initially granted to Bird and Company Limited by the Raja of Keonjhar in the 1920s. These leases were for 30 years each. The leases were renewed subsequently. Bird and Co. did not undertake mining activities; instead, its subsidiary, Odisha Mineral Development Company (OMDC), was the actual beneficiary. Bird and Co. was nationalized in 1980, and its undertakings were transferred to the Central Government, which then vested them in Bharat Process & Mechanical Engineers Limited (BPMEL). BPMEL later became a sick company and was ordered to be wound up in 2004. The core issue is whether these leases can be renewed despite BPMEL’s liquidation and the fact that the leases had expired.

The parties involved include:

• Appellant: The Government of Odisha
• Respondents: Bharat Process & Mechanical Engineers Limited (in liquidation), TPG Equity Management Private Limited, and others.

The relief sought by the Government of Odisha was to set aside the High Court’s order to form a committee for lease renewal, while TPG sought the renewal of the mining leases.

Timeline

Course of Proceedings

The High Court of Calcutta directed the formation of a High-Powered Committee to decide on the renewal of the mining leases. This was challenged by the Government of Odisha. The High Court of Orissa at Cuttack allowed the writ petition filed by the State of Odisha setting aside the order of the revisional authority dated 02.02.2009, which had remanded the application for renewal of the Kolha-Roida lease for reconsideration. TGP filed an appeal against this order and the order dismissing the review petition.

Legal Framework

The judgment refers to several legal provisions:

• Section 3 of the Bird and Company Limited (Acquisition and Transfer of Undertaking and Other Properties) Act, 1980: This section states that the undertakings of Bird and Co. and the rights, titles, and interests related to those undertakings were transferred to the Central Government. “On the appointed day, the undertakings of the company and the right, title and interest of the Company in relating to its undertakings shall, by virtue of this Act, stand transferred to, and vest in, the Central Government.”
• Section 7 of the Bird and Company Limited (Acquisition and Transfer of Undertaking and Other Properties) Act, 1980: This section allows the Central Government to vest the undertakings in a government company. “Notwithstanding anything contained in section 3, the Central Government may, if it is satisfied that a Government company is willing to comply with such terms and conditions as that Government may think fit to impose, direct, by notification, that the undertakings of the Company and the right, title and interest of the Company in relation to its undertakings which have vested in the Central Government under section 3, shall, instead of continuing to vest in the Central Government, vest in the Government company either on the date of publication of the notification or on such earlier or later date (not being a date earlier than the appointed day) as may be specified in the notification.”
• Rule 72 of the Mineral (Other than Atomic and Hydro Carbons Energy) Concessional Rules, 2016: This rule deals with the extension of mining leases for government companies. It states that leases granted before 12th January 2015 are deemed to be for 50 years and can be extended by 20 years at a time, provided the application is made at least three months before expiry.
• Section 4A(4) of the Mines and Minerals (Development and Regulation) Act, 1957: This section states that a mining lease lapses if production and dispatch are not undertaken for two years after the execution of the lease. “Where the holder of a mining lease fails to undertake production and dispatch for a period of two years after the date of execution of the dispatch, has continued the same for a period of two years, the lease shall lapse on the expiry of the period of two years from the date of execution of the lease or, as the case may be, discontinuance of the production and dispatch.”
• Rule 23 of the Mineral (Other than Atomic and Hydro Carbons Energy) Concessional Rules, 2016: This rule permits the transfer of a mining lease or composite license.
• Section 446(2)(d) of the Companies Act, 1956: This section allows the court to entertain and dispose of any question of law or fact that relates to or arises in the course of winding up of the company.
• Section 457(1)(b) and 457(2)(5)(2) of the Companies Act, 1956: These sections state that the liquidator, with court sanction, can carry on the business of the company for beneficial winding up and can appoint an agent to do so.
• Section 201 of the Indian Contract Act, 1872: This section deals with the termination of agency. “An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.”

Arguments

Arguments by TGP:

• TGP argued that BPMEL, being a government company, is entitled to an automatic extension of leases under Rule 72 of the Mineral (Other than Atomic and Hydrocarbon Energy) Concessional Rules, 2016. They claimed that all four conditions for this rule were met: BPMEL is a government company, the renewal application was made before the lease expired, the application was pending as of 12.01.2015, and the leases had not lapsed.
• TGP relied on Section 4A(4) of the Mines and Minerals (Development and Regulation) Act, 1957, stating that the leases had not lapsed because there was no express order by the State Government declaring them lapsed, citing the case of Common Cause v. Union of India.
• TGP contended that Rule 23 of the 2016 Rules allows for the transfer of a mining lease, and the conditions were satisfied as OMDC and BPMEL had filed the required affidavits.
• TGP argued that under Section 446(2)(d) of the Companies Act, 1956, the court can decide on any question related to the winding up of the company.
• TGP submitted that under Section 457(1)(b) and 457(2)(5)(2) of the Companies Act, 1956, the liquidator can continue the company’s business for beneficial winding up and can appoint an agent. They cited Ravindra Ishwardas Sethna v. Official Liquidator and Assistant Commissioner, Ernakulam v. Hindustan Urban Infrastructure.
• TGP argued that the interest of the creditors is paramount during the winding up process, and the objections of the Union of India should be rejected.

Arguments by the Government of Odisha and the Union of India:

• The Union of India and the State of Odisha both opposed the renewal of the leases.
• They argued that the leases had expired by effluxion of time and that BPMEL was not in a position to operate them.

Innovativeness of the argument: TGP innovatively argued for the automatic extension of the mining leases by relying on Rule 72 of the 2016 Rules, which was a novel approach in the context of a company undergoing liquidation.

Issues Framed by the Supreme Court

The key issue before the Supreme Court was:

1. Whether the High Court at Calcutta was justified in directing the formation of a High-Powered Committee to decide on the renewal of the three mining leases.
2. Whether the mining leases should be renewed in favour of BPMEL or OMDC.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Common Cause v. Union of India [(2016) 11 SCC 455]*: The Supreme Court distinguished this case, stating that it was not applicable to the facts of the present case. The court held that the leases had lapsed due to non-operation.

✓ Ravindra Ishwardas Sethna v. Official Liquidator [(1983) 4 SCC 269]*: The Supreme Court distinguished this case, stating that it was not applicable to the facts of the present case. The court held that the liquidator’s powers could not be used to revive a defunct company after 30 years.

✓ Assistant Commissioner, Ernakulam v. Hindustan Urban Infrastructure [(2015) 3 SCC 745]*: The Supreme Court distinguished this case, stating that it was not applicable to the facts of the present case. The court held that the liquidator’s powers could not be used to revive a defunct company after 30 years.

✓ Section 3 of the Bird and Company Limited (Acquisition and Transfer of Undertaking and Other Properties) Act, 1980: The court used this section to establish the transfer of undertakings to the Central Government.

✓ Section 7 of the Bird and Company Limited (Acquisition and Transfer of Undertaking and Other Properties) Act, 1980: The court used this section to establish the transfer of undertakings to BPMEL.

✓ Rule 72 of the Mineral (Other than Atomic and Hydro Carbons Energy) Concessional Rules, 2016: The court examined the conditions for automatic extension of mining leases for government companies and found that they were not met.

✓ Section 4A(4) of the Mines and Minerals (Development and Regulation) Act, 1957: The court considered the conditions for the lapse of mining leases and held that the leases had lapsed due to non-operation.

✓ Rule 23 of the Mineral (Other than Atomic and Hydro Carbons Energy) Concessional Rules, 2016: The court considered the conditions for transfer of mining leases and found them inapplicable to the facts of the case.

✓ Section 446(2)(d) of the Companies Act, 1956: The court considered the scope of its powers in winding up proceedings but found them insufficient to justify lease renewal.

✓ Section 457(1)(b) and 457(2)(5)(2) of the Companies Act, 1956: The court considered the powers of the liquidator in winding up proceedings but found them inapplicable to the facts of the case.

✓ Section 201 of the Indian Contract Act, 1872: The court considered the termination of the agency relationship between BPMEL and OMDC.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the impracticality of renewing the mining leases given the long period of non-operation of BPMEL, its liquidation status, and the separate legal identity of OMDC. The court emphasized that the leases had expired and that there was no feasible plan for their operation. The court also considered the financial difficulties of OMDC and the significant liabilities involved, including penalties and workers’ dues. The court concluded that any attempt to renew the leases would be futile and without any tangible benefit.

The court’s decision was influenced more by the factual circumstances of the case (60%) than by legal considerations alone (40%).

The court’s decision was based on a step-by-step logical reasoning process, considering the facts of the case and the relevant legal principles. The court rejected the arguments for renewal, emphasizing the impracticality and lack of a feasible plan.

The court did not consider any alternative interpretations, as the facts and legal positions were clear. It rejected the arguments for lease renewal based on the long period of non-operation, the liquidation status of BPMEL, and the financial difficulties of OMDC. The court concluded that any attempt to renew the leases would be futile.

The decision was reached by considering the facts of the case, the relevant legal provisions, and the impracticality of renewing the leases. The court emphasized the need to bring the dispute to an end.

The court’s decision was based on the following reasons:

• BPMEL has been non-operational for nearly three decades and is undergoing liquidation.
• The mining leases had expired by effluxion of time.
• OMDC is a separate juristic entity, and BPMEL’s power of attorney to OMDC stood terminated.
• There was no feasible plan for the operation of the mines.
• The liabilities involved were too significant, and the prospect of renewal was implausible.

The court stated, “entertaining any notion of lease renewal would be an exercise in futility, devoid of any practical or tangible benefit.” The court also noted, “The sheer magnitude of the liabilities involved renders the prospect of renewal implausible.” Furthermore, the court observed, “Prolonging it any further, sans a feasible resolution in sight, would be otiose.”

There were no dissenting opinions in this case. The judgment was delivered by a bench of two judges, with Justice Sanjiv Khanna authoring the opinion.

Key Takeaways

• Mining leases cannot be automatically renewed for a company undergoing liquidation if the leases have expired.
• The courts will not entertain requests for lease renewals if there is no feasible plan for the operation of the mines.
• The separate legal identity of a subsidiary company will be respected, and the parent company’s liquidation will affect the subsidiary’s operations.
• The interest of creditors and workers will be considered, but it will be balanced with other factors.

This judgment has significant implications for future cases involving the renewal of mining leases for companies undergoing liquidation. It clarifies that the courts will prioritize the practical aspects of the situation and will not order renewals if there is no feasible plan for the operation of the mines.

Directions

The Supreme Court directed that the proceedings will continue before the Company Court of the High Court at Calcutta. The workers and TGP will be entitled to raise all pleas and contentions as are available under the Companies Act, 1956, for the payment and enforcement of their dues.

Development of Law

The ratio decidendi of this case is that mining leases cannot be automatically renewed for a company undergoing liquidation if the leases have expired and there is no feasible plan for operation. This judgment clarifies the position of law regarding the renewal of mining leases in the context of company liquidation and emphasizes the need for a practical and feasible approach.

Conclusion

The Supreme Court allowed the appeals filed by the State of Odisha, setting aside the High Court’s order to form a committee for lease renewal. The court also dismissed the appeals filed by TGP, upholding the rejection of the Kolha-Roida lease renewal and clarifying that the applications for renewal of Thakurani and Dalki leases would also be treated as rejected. The court emphasized that the leases had expired, and there was no practical benefit in renewing them, given BPMEL’s liquidation and the lack of a feasible plan for operation. The workers and TGP will be entitled to raise their claims in the ongoing winding-up proceedings.