Mining during statutory lease extension cannot be penalised merely for want of a supplementary deed, Karnataka High Court rules; notional royalty demand set aside

A.C.C. Limited (“ACC”) held mining lease ML No. 2641 for extraction of limestone, shale and clay for captive manufacture of cement.

The lease, renewed for 20 years from 19 February 2003, was due to expire on 18 February 2023.

ACC contended that, under Section 8A(5) of the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”), the lease stood statutorily extended until 31 March 2030.

The State Government’s order dated 25 August 2022 directed execution of a Supplementary Lease Deed, subject inter alia to submission of statutory clearances and payment of arrears claimed by the Government.

The Department of Mines and Geology (“DMG”) blocked ACC’s Integrated Lease Management System (“ILMS”) access on 21 November 2023, preventing it from obtaining transit permits and making royalty payments.

The State raised substantial royalty demands by applying a notional limestone-to-clinker ratio of 1:1.42, notwithstanding ACC’s actual weighment records and beltometer data.

An earlier Revisional Authority order dated 6 May 2019 had directed reconsideration of the demand in light of the State-level decision dated 31 March 2012, which required royalty to be calculated on actual production and weighment.

On 5 June 2025, DMG demanded ₹482.69 crores as penalty under Section 21(5) of the MMDR Act, alleging that ACC had extracted limestone unlawfully after expiry of the lease term because no Supplementary Lease Deed had been executed.

Separately, the Revisional Authority, by order dated 9 September 2025, held that royalty assessment based on the notional conversion factor was unjustified and remanded the matter for reconsideration.

Whether ACC’s mining operations after 18 February 2023, during the period of statutory extension under Section 8A(5) of the MMDR Act, were unlawful merely because a Supplementary Lease Deed had not been executed, thereby attracting Section 21(5) of the MMDR Act

Whether ACC’s non-payment of royalty calculated on the State’s disputed notional consumption formula constituted non-compliance with the terms and conditions of the mining lease, disentitling it from the benefit of Section 8A(5)

Whether the Revisional Authority’s order dated 9 September 2025, rejecting royalty assessment on the basis of the notional conversion factor, was vitiated by violation of natural justice or was otherwise legally unsustainable

The Court applied Section 8A(5) of the MMDR Act, which statutorily extends captive mining leases up to 31 March 2030, subject to compliance with the lease terms and conditions.

Section 21(5) applies only where minerals are raised “without any lawful authority”.

Section 9 requires payment of royalty in respect of minerals removed or consumed, and royalty is generally assessed by reference to the quantity actually removed or consumed.

Relying on Common Cause v. Union of India, (2016) 11 SCC 455, the Court held that Section 8A was intended to prevent hardship caused by pending renewals and that its statutory benefit could not be defeated by unnecessary procedural conditions.

Under Provash Chandra Dalui v. Biswanath Banerjee, 1989 Supp (1) SCC 487, and State of U.P. v. Lalji Tandon, (2004) 1 SCC 1, extension prolongs the existing lease, whereas renewal ordinarily requires a fresh deed; consequently, a fresh or supplementary deed is not indispensable in the case of statutory extension.

The Court also relied on State of Gujarat v. Nirmalaben S. Mehta, (2016) 9 SCC 240, and Gujarat Pottery Works Pvt. Ltd. v. B.P. Sood, 1966 SCC OnLine SC 126, regarding the distinction between grant of a lease and formal execution of the deed.

For royalty assessment, the Court held that a notional conversion factor may be used only where actual weighment is credibly disputed or the lessee cannot substantiate its records; it cannot replace reliable actual measurement without a demonstrated basis.

The Court held that Section 8A(5) itself extended ACC’s existing mining lease until 31 March 2030.

Since the extension was statutory, failure to execute a Supplementary Lease Deed did not extinguish ACC’s authority to mine or render the extracted minerals unlawful under Section 21(5).

The Supplementary Lease Deed was relevant for formally recording the extended term but was not a condition precedent to lawful mining.

The statutory clearances required under the Government Order were undisputedly available, and the State could not convert the disputed royalty demand into a ground for denying the statutory extension.

ACC had paid royalty based on its actual consumption records, while the State’s demand rested on the disputed 1:1.42 formula.

The Court found that the State had not established that ACC’s beltometer records were inaccurate, that the actual consumption was impossible, or that the notional formula was more scientifically reliable.

The State was also bound by the final Revisional Authority order dated 6 May 2019 directing consideration of actual weighment and could not disregard that direction by characterising the 31 March 2012 minutes as non-binding.

The State had been given repeated opportunities to present its objections before the Revisional Authority; its failure to file submissions within the granted time did not establish a breach of natural justice.

It further upheld the Revisional Authority’s conclusion that royalty could not be assessed on the notional 1:1.42 conversion factor in the absence of a credible challenge to ACC’s actual weighment records.

Set aside the impugned penalty demand.

Directed the State and DMG to restore and maintain full access to the ILMS Portal.

Dismissed the State’s challenge to the Revisional Authority’s order.

Directed execution of the Supplementary Lease Deed without insisting upon a no-dues certificate.

Directed refund of the ₹125 crores deposited by ACC pursuant to the interim order dated 29 October 2024.

W.P. Nos. 25298/2024 and 18655/2025 were allowed, while W.P. No. 36850/2025 was dismissed.