State cannot retain royalty for periods where mining was legally disabled by subsequently set-aside cancellation orders.

In brief

The question

1. Whether the State can legally retain royalty/bid amounts for a period during which a settlee was prevented from mining due to a cancellation order that was subsequently set aside on merits

The court held

The Court allowed the writ petition and quashed the order dated 20.11.2024. It held that the petitioners are entitled to a refund of the bid amount on a pro-rata basis for the period they were precluded from mining.

It also directed

The Court directed the respondents to: (i) quantify the refund amount for the period 07.02.2019 to 08.06.2019 after a hearing within eight weeks and (ii) pay compensatory simple interest at 6% per annum on the quantified amount.

01Facts

Md. Israil (husband of Petitioner No. 1) was the successful bidder for a five-year sand mining settlement (2015–2019) in Kishanganj

p. 3

Following a complaint of illegal mining and a subsequent inspection report, the Collector cancelled the settlement on 29.01.2019

p. 8

On revision, the Mines Commissioner set aside the cancellation on 03.05.2019, finding the allegations based on conjecture and remanding the matter

p. 8

Upon remand, the Collector restored the settlement on 08.06.2019 after verifying that sand stocks were depleted due to flash floods rather than illegal mining

p. 9

Despite this restoration, the Mining Department demanded full royalty for the period the lease was cancelled (07.02.2019 to 08.06.2019). The petitioners paid the amount under protest and threat of criminal prosecution

p. 10

A representation for a pro-rata refund was rejected by the Director of Mines on 20.11.2024 on the grounds that the initial cancellation was "fault-based" and the revisional restoration was merely "lenient"

p. 24

02Issues

i.1. Whether the State can legally retain royalty/bid amounts for a period during which a settlee was prevented from mining due to a cancellation order that was subsequently set aside on merits

p. 3 / para. 4

ii.2. Whether the respondent authority can supplement or re-interpret the reasons of a quasi-judicial revisional order in a subsequent administrative proceeding

p. 25 / para. 28

03Law Applied

The Court applied the principle from Mohinder Singh Gill v. Chief Election Commr., establishing that the validity of a statutory order must be judged by the reasons mentioned therein and cannot be supplemented by fresh reasons later

p. 25

It followed the doctrine of actus curiae neminem gravabit (an act of the court shall prejudice no man), as seen in Chitra v. State of Kerala, which held that licensees are entitled to pro-rata remission of fees if precluded from business for reasons not attributable to them

p. 31

The Court further relied on Jai Durga Finvest (P) Ltd. v. State of Haryana, regarding the frustration of contracts in mining leases

p. 28

The Court relied on Beg Raj Singh v. State of U.P., which held that a successful party should be placed in the same position they would have occupied had the wrong not been committed

p. 35

Provisions in the judgment · 1 · Linked ones open on LawLens

Environment (Protection) Act, 1986 Section 3

04Reasoning

The Court observed that the cancellation order dated 29.01.2019 lost its legal foundation once it was set aside by the Mines Commissioner and the settlement was restored on merits by the Collector

p. 27, 42

The Court rejected the respondent's attempt to characterize the revisional order as "lenient," holding that an authority cannot recast a quasi-judicial order to justify retaining funds

p. 26

It reasoned that royalty is fundamentally tied to the right to extract and remove minerals; since the settlee was legally disabled from operating between 07.02.2019 and 08.06.2019 due to an unsustainable state action, the state’s demand for royalty for that interregnum constituted "unjust enrichment"

pp. 41-42

The Court further noted that payments made under "protest and fear of criminal prosecution" do not waive the right to a refund

p. 44