Supreme Court Upholds State’s Right to Compensation in Land Acquisition Cases: Mahanadi Coalfields Ltd. vs. State of Odisha (20 January 2023)

Date of the Judgment: 20 January 2023

Citation: Civil Appeal No. 220 of 2023 (@ SLP(C) No. 16835 of 2019)

Judges: M. R. Shah, J. and C.T. Ravikumar, J.

Can a state government claim compensation for land acquired by the central government for coal mining, even after the land has been transferred to a government company? The Supreme Court addressed this critical question in a recent judgment, clarifying the rights of state governments in land acquisition cases under the Coal Bearing Areas (Acquisition and Development) Act, 1957. The court examined whether the state is entitled to compensation beyond the royalty for extracted minerals. This judgment clarifies the interplay between central and state rights in land acquisition for coal mining.

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, using its powers under Section 11 of the same Act, directed that the rights over these lands would vest in Western Coalfields Limited (WCL) in 1981 and later in another Government Company in 1987. The District Magistrate & Collector, Sambalpur, issued demand notices to Mahanadi Coalfields Ltd. (MCL) for Rs. 70 lakhs as premium for the government land and Rs. 40 lakhs as compensation. MCL challenged these demands, arguing that the State Government was not entitled to any compensation beyond the royalty as per Section 18(a) of the Act, 1957, once the land vested in the Central Government or its company. The High Court of Orissa upheld the demands, stating that the State Government, as a ‘person interested’ under Section 2(d) of the Act, was entitled to compensation.

Timeline

Course of Proceedings

Mahanadi Coalfields Ltd. (MCL) filed a writ petition before the High Court of Orissa challenging the demand notices issued by the District Magistrate & Collector, Sambalpur. MCL argued that once the lands and rights vested in the Central Government, the State Government was not entitled to any compensation except the royalty under Section 18(a) of the Coal Bearing Areas (Acquisition and Development) Act, 1957. The High Court, however, interpreted Section 2(d) of the Act, 1957, stating that the State Government was a ‘person interested’ in the land and thus, entitled to compensation. Consequently, the High Court dismissed the writ petition, upholding the demand for premium and compensation. MCL then appealed to the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Coal Bearing Areas (Acquisition and Development) Act, 1957. Key provisions include:

• Section 4: This section allows the Central Government to notify its intention to prospect for coal in any locality.
• Section 9: This section allows the Central Government to declare that any land or rights over land should be acquired.
• Section 10: Upon declaration under Section 9, the land and rights over it vest absolutely in the Central Government, free from all encumbrances.
• Section 11: This section allows the Central Government to direct that the land or rights over it, instead of vesting in the Central Government, vest in a Government company, subject to certain conditions. It also states that the Government company shall be deemed to be the lessee of the State Government.
• Section 2(d): Defines “person interested” in the context of land acquisition.
• Section 18(a): This section, inserted in 1971, provides for the payment of royalty to the State Government for the extraction of minerals.

The Supreme Court considered how these provisions interact to determine the State Government’s entitlement to compensation when land is acquired for coal mining and subsequently vested in a Government company. The Court also considered the Mineral Concession Rules in relation to the mining lease.

Arguments

Appellant (Mahanadi Coalfields Ltd.) Arguments:

• The appellant argued that once the land and rights over it vest absolutely in the Central Government or a Government company under Sections 10 and 11 of the Coal Bearing Areas (Acquisition and Development) Act, 1957, the State Government is not entitled to any compensation, premium, or rental, except for the royalty under Section 18(a) of the Act. The appellant contended that the vesting is absolute and free from all encumbrances.

• The appellant submitted that the State Government’s claim for premium and compensation is illegal, as Section 18(a) of the Act provides the only financial obligation for the company.

Respondent (State of Odisha) Arguments:

• The State argued that it was the original owner of the land and is therefore entitled to premium, compensation, and rentals for the land, even after it has been vested in a Government company. The State contended that the vesting of rights in a Government company under Section 11 does not extinguish its right to compensation.

• The State submitted that Section 18(a) of the Act, which provides for royalty payments, is separate from the State’s right to receive compensation/rental for the land. The royalty is for the extraction of minerals, while compensation is for the loss of ownership and use of the land.

• The State relied on the definition of “person interested” under Section 2(d) of the Act, arguing that as the original owner and deemed lessor, it is a ‘person interested’ and, therefore, entitled to compensation.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the State Government is entitled to claim compensation/premium/rental for the land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, in addition to the royalty payable under Section 18(a) of the Act, when the land is vested in a Government company.

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?

• The Court interpreted the Coal Bearing Areas (Acquisition and Development) Act, 1957, particularly Sections 2(d), 10, 11, and 18(a), to establish that the vesting of land in the Central Government or a Government company does not extinguish the State’s right to compensation.
• The Court considered the Mineral Concession Rules to understand the nature of the mining lease and the deemed lessee status of the Government company under Section 11(2) of the Act.
• The Court used the Statements of Objects and Reasons of Act 54 of 1971 to clarify that the introduction of Section 18(a) was intended to ensure that State Governments receive royalty for mineral extraction, which is separate from compensation for land acquisition.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following considerations:

• The interpretation of the Coal Bearing Areas (Acquisition and Development) Act, 1957, particularly Sections 2(d), 10, 11, and 18(a).
• The distinction between royalty (for mineral extraction) and compensation (for land acquisition).
• The State Government’s status as the original owner of the land and a ‘person interested’ under Section 2(d) of the Act.
• The legislative intent behind Section 18(a) as clarified by the Statements of Objects and Reasons of Act 54 of 1971.

Logical Reasoning:

The Court’s reasoning was based on a careful analysis of the statutory provisions and the legislative intent. The Court emphasized that the State Government’s right to compensation is distinct from the royalty payable for mineral extraction. The Court rejected the argument that the vesting of land in the Central Government or a Government company extinguished the State’s right to compensation.

The Court stated, “As per Section 11, the Government company in whose favour the order has been issued by the Central Government shall be deemed to be the lessee and shall be liable to pay the compensation/rental, etc., to the State Government being ‘person interested’.”

The Court further clarified, “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 concluded, “In that view of the matter over and above the amount of royalty the coal company/Government company shall be liable to pay the compensation and surface land rent, etc.”

Key Takeaways

• State Governments are entitled to compensation for land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, even when the land is vested in a Government company.
• This compensation is separate from the royalty payable under Section 18(a) of the Act, which is for the extraction of minerals.
• 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.

Directions

The Supreme Court upheld the demand notices issued by the District Magistrate & Collector, Sambalpur. However, it allowed the appellant to approach the appropriate authority if they disputed the quantum or calculation of the demand.

Development of Law

The ratio decidendi of this case is that the State Government is entitled to compensation for land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, in addition to the royalty payable under Section 18(a) of the Act. This decision clarifies that the vesting of land in the Central Government or a Government company does not extinguish the State’s right to compensation as the original owner and deemed lessor. The Court’s interpretation reinforces the principle that the State is a ‘person interested’ and is entitled to compensation for the loss of land, separate from royalty for mineral extraction.

Conclusion

The Supreme Court’s judgment in Mahanadi Coalfields Ltd. vs. State of Odisha clarifies that State Governments are entitled to compensation for land acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, even when the land is vested in a Government company. This compensation is distinct from the royalty payable for mineral extraction. The Court’s decision ensures that State Governments are adequately compensated for the loss of their land and reinforces the principle that the State is a ‘person interested’ in such matters.