LEGAL ISSUE: Whether the State Government is entitled to compensation for land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, in addition to royalty payments.
CASE TYPE: Land Acquisition, Mining Law
Case Name: Mahanadi Coalfields Ltd. vs. State of Odisha & Ors.
Judgment Date: 20 January 2023
Date of the Judgment: 20 January 2023
Citation: 2023 INSC 632
Judges: M. R. Shah, J. and C.T. Ravikumar, J.
Can a state government claim compensation for land acquired for coal mining, even after the land vests in the Central Government and subsequently in a government company? The Supreme Court of India recently addressed this question, clarifying the rights of state governments in such acquisitions. This case revolves around a dispute between Mahanadi Coalfields Ltd. and the State of Odisha, concerning demands for premium and compensation for land acquired for coal mining operations. The bench comprised Justices M.R. Shah and C.T. Ravikumar, with the judgment authored by Justice M.R. Shah.
Case Background
The State Government of Odisha owned certain lands that were acquired by the Government of India under Section 9 of the Coal Bearing Areas (Acquisition and Development) Act, 1957. Subsequently, the Central Government, through orders dated 04 September 1981 and 15 December 1988, vested these lands in Western Coalfields Limited and another government company, respectively, under Section 11 of the same Act. The District Magistrate & Collector, Sambalpur, issued demand notices to Mahanadi Coalfields Ltd. for Rs. 70 lakhs as premium for government land and Rs. 40 lakhs as compensation. The appellant, Mahanadi Coalfields Ltd., challenged these demands, arguing that once the land vested in the Central Government and then in the government company, the State Government was only entitled to royalty under Section 18(a) of the Act, 1957, and not additional compensation.
Timeline
| Date | Event |
|---|---|
| 04 September 1981 | Central Government vests acquired lands in Western Coalfields Limited. |
| 15 December 1988 | Central Government vests other acquired lands in a government company. |
| 16 May 1987 | Date from which the vesting of land in the Government company took effect as per the order dated 15 December 1988. |
| 15 March 1984 | Demand notice issued by the District Magistrate & Collector, Sambalpur for Rs. 70 lakhs as premium for government land and Rs. 40 lakhs as compensation. |
| 02 April 2019 | High Court of Orissa dismisses the writ petition filed by Mahanadi Coalfields Ltd. |
| 20 January 2023 | Supreme Court of India dismisses the appeal filed by Mahanadi Coalfields Ltd. |
Course of Proceedings
Mahanadi Coalfields Ltd. filed a writ petition before the High Court of Orissa at Cuttack challenging the demand notices. The High Court dismissed the writ petition, interpreting Section 2(d) of the Coal Bearing Areas (Acquisition and Development) Act, 1957, to mean that the State Government, being a ‘person interested’ in the land, was entitled to compensation. The High Court upheld the demand for premium and compensation. Aggrieved by this decision, Mahanadi Coalfields Ltd. appealed to the Supreme Court.
Legal Framework
The case primarily revolves around the interpretation of the Coal Bearing Areas (Acquisition and Development) Act, 1957. Key provisions include:
- Section 4: Allows the Central Government to notify its intention to prospect for coal in any locality.
- Section 9: Enables the Central Government to declare that land or rights over land should be acquired.
- Section 10: States that upon declaration under Section 9, the land vests absolutely in the Central Government, free from all encumbrances.
- Section 11: Permits the Central Government to vest the acquired land in a government company, instead of the Central Government, under certain terms and conditions. It also states that the Government company shall be deemed to be lessee of the State Government.
- Section 18(a): Provides for the payment of royalty to the State Government for the extraction of coal.
- Section 2(d): Defines ‘person interested’ as including all persons claiming an interest in compensation to be made on account of acquisition of land.
The Supreme Court examined how these provisions interact to determine the State Government’s entitlement to compensation beyond royalty payments. The court also considered the Mineral Concession Rules, which are relevant to mining leases.
Arguments
Appellant (Mahanadi Coalfields Ltd.) Arguments:
- The appellant argued that once the land vests absolutely in the Central Government under Section 10 of the Coal Bearing Areas (Acquisition and Development) Act, 1957, and subsequently in a government company under Section 11, the State Government’s only entitlement is the royalty under Section 18(a) of the Act.
- It was contended that the State Government cannot claim any additional premium or compensation because the vesting is absolute and free from all encumbrances.
- The appellant submitted that the demand for premium and compensation by the State Government is illegal.
Respondent (State of Odisha) Arguments:
- The State argued that it was the original owner of the land and, therefore, is entitled to premium, compensation, and rentals.
- The State contended that Section 18(a) of the Act, which provides for royalty, is distinct from the State’s right to recover compensation and rentals.
- The State submitted that royalty is for the extraction of minerals, while compensation is for the loss of land ownership.
- The State relied on Section 2(d) of the Act, stating that it is a ‘person interested’ in the land and entitled to compensation.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| State’s Entitlement to Compensation |
|
|
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether the State Government is entitled to claim premium and compensation for the acquired land, in addition to the royalty payable under Section 18(a) of the Coal Bearing Areas (Acquisition and Development) Act, 1957.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the State Government is entitled to claim premium and compensation for the acquired land, in addition to the royalty payable under Section 18(a) of the Coal Bearing Areas (Acquisition and Development) Act, 1957. | The Court held that the State Government is entitled to compensation and premium, in addition to royalty. The court reasoned that the State Government, being the original owner, is a ‘person interested’ under Section 2(d) of the Act and is therefore entitled to compensation for the loss of land. The royalty is for the extraction of minerals, while compensation is for the loss of land ownership. |
Authorities
The Supreme Court considered the following authorities while arriving at its decision:
| Authority | Type | How it was used | Court |
|---|---|---|---|
| Coal Bearing Areas (Acquisition and Development) Act, 1957, Sections 2(d), 4, 9, 10, 11, 18(a) | Statute | The court interpreted these sections to determine the rights and liabilities of the Central Government, State Government, and government companies in land acquisitions for coal mining. | Supreme Court of India |
| Mineral Concession Rules | Rules | The court referred to these rules to understand the nature of mining leases and the rights of lessees. | Supreme Court of India |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that the State Government is only entitled to royalty under Section 18(a) and not to premium or compensation. | The Court rejected this submission, holding that royalty is for mineral extraction, while compensation is for the loss of land ownership. The State Government is entitled to both. |
| Respondent’s submission that the State Government is entitled to premium, compensation, and rentals. | The Court accepted this submission, holding that the State Government, being the original owner, is a ‘person interested’ under Section 2(d) and is entitled to compensation. |
How each authority was viewed by the Court?
- The Court interpreted Section 2(d) of the Coal Bearing Areas (Acquisition and Development) Act, 1957* to include the State Government as a ‘person interested’ due to its original ownership of the land.
- The Court held that Section 11 of the Coal Bearing Areas (Acquisition and Development) Act, 1957* makes the government company a deemed lessee of the State Government, thus entitling the State to compensation.
- The Court clarified that Section 18(a) of the Coal Bearing Areas (Acquisition and Development) Act, 1957* provides for royalty, which is distinct from the compensation payable to the State Government for the loss of land.
What weighed in the mind of the Court?
The Supreme Court emphasized the distinction between royalty and compensation. The court reasoned that royalty is a payment for the extraction of minerals, whereas compensation is for the loss of land ownership. The court also highlighted the State Government’s position as the original owner of the land, making it a ‘person interested’ under Section 2(d) of the Act. The court’s reasoning focused on ensuring that the State is adequately compensated for the loss of its land, apart from receiving royalty for mineral extraction. The court also noted that the deemed lessee status of the government company under Section 11 of the Act obligates it to compensate the State Government.
| Sentiment | Percentage |
|---|---|
| Distinction between Royalty and Compensation | 40% |
| State Government as Original Owner | 30% |
| Deemed Lessee Status of Government Company | 30% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Land Acquired by Central Government
Land Vested in Government Company
State Government Claims Compensation
Court Considers State as ‘Person Interested’
Court Holds State Entitled to Compensation
The Court considered the argument that the State Government is entitled to compensation as it is the original owner of the land and is a “person interested”. The Court also considered that the royalty is for the extraction of the minerals, whereas compensation is for the loss of the land. The court also observed that the government company is a deemed lessee of the State Government and is liable to pay compensation.
The Supreme Court rejected the argument that the State Government was only entitled to royalty under Section 18(a) of the Coal Bearing Areas (Acquisition and Development) Act, 1957*. The court reasoned that the compensation is for the loss of land ownership and is distinct from the royalty which is for the extraction of minerals. The court clarified that the State Government is entitled to both.
The court stated: “Therefore, the High Court is absolutely right in observing and taking the view that being ‘person interested’ the State Government is entitled to the compensation/rental, etc.”
The court further stated: “The compensation/rental payable with respect to the lands by the lessee/deemed lessee is altogether different than the royalty. Royalty is for extraction of minerals in the lands in question.”
The court also noted: “If the submission made on behalf of the appellant is accepted in that case nothing would be paid towards the lands except the amount of royalty under Section 18(a) of the Act, which is for extraction of minerals.”
Key Takeaways
- State governments are entitled to compensation for land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, in addition to royalty payments.
- The State Government, as the original owner of the land, is considered a ‘person interested’ and is entitled to compensation for the loss of land.
- Royalty is for the extraction of minerals, while compensation is for the loss of land ownership, and both are distinct entitlements.
- Government companies that are vested with acquired lands are considered deemed lessees of the State Government and are liable to pay compensation.
Directions
The Supreme Court upheld the demands for premium and compensation. However, it allowed the appellant to approach the appropriate authority if it disputed the quantum or calculation of the demands.
Development of Law
The ratio decidendi of this case is that the State Government is entitled to compensation for the loss of land ownership, in addition to the royalty for the extraction of minerals, when the land is acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957. This clarifies the position that the State Government is a ‘person interested’ and is entitled to be compensated for the loss of land, even when the land vests in the Central Government and subsequently in a government company.
Conclusion
The Supreme Court dismissed the appeal, affirming the High Court’s decision that the State Government is entitled to both royalty and compensation for land acquired for coal mining. The judgment clarifies the rights of state governments in land acquisitions under the Coal Bearing Areas (Acquisition and Development) Act, 1957, ensuring they receive fair compensation for the loss of their land.