State Inaction in Determining Mining Lease for Non-Payment Constitutes Arbitrary Exercise of Power Under Article 14

The petitioner was awarded a mining lease for five years (2018–2023) for sand/moram in District Fatehpur.

After paying the first installment and security, the petitioner failed to pay the second and third installments due on 01.01.2019 and 01.04.2019.

The petitioner alleged that mining was impossible because the river changed its course, submerging the land or placing it within the jurisdiction of District Banda.

Multiple joint surveys conducted between March and May 2019 concluded there was no boundary overlapping and the full area was available.

Despite non-payment and notices issued in April and May 2019, the District Magistrate (DM) did not terminate the lease until 01.01.2020, while simultaneously demanding installments for the entire period and blacklisting the firm for two years.

1. Whether the lessee is liable to pay royalty only on the actual quantity of minerals excavated under Section 15(3) of the MMDR Act, 1957.

2. Whether the State's delay in invoking the power to determine the lease under Rule 58 of the 1963 Rules, despite continuous defaults, constitutes an arbitrary exercise of power under Article 14.

Section 15(3) of the Mines and Minerals (Development and Regulation) Act, 1957, holding that in auction-provisions, royalty installments are binding contractual considerations regardless of actual excavation.

Rule 58 of the U.P. Minor Minerals (Concession) Rules, 1963, which empowers the State to determine a lease for non-payment after a 30-day notice period.

The doctrine of "arbitrariness" under Article 14 of the Constitution, as defined in Kumari Shrilekha Vidyarthi v. State of U.P. and M.P. Power Management Co. Ltd. v. SKY Power Southeast Solar India, which mandates that State inaction causing soaring liabilities without reasonable cause is legally unsustainable.

The Court rejected the petitioner’s claim regarding the physical impossibility of mining, noting that three successive joint survey reports confirmed the area was available and boundaries were distinct.

The Court observed that while the State has the power to determine the lease under Rule 58, the lessee has no reciprocal "exit-way" under the Rules.

The Court reasoned that since the petitioner ceased mining after May 2019, the State’s failure to act promptly under Rule 58—after the 15-day default period and 30-day notice—was an arbitrary exercise of discretion that unfairly increased the lessee's liability.

The absence of a disclosed reason for this delay indicated a lack of good faith.

The demand for installments due on 01.07.2019 and 01.10.2019 was quashed, as the lease should have been determined promptly by the DM following the May 2019 notice.

Writ-C No. 3056 of 2020 was partly allowed: the order determining the lease was upheld, but the recovery of installments due after July 2019 was set aside; Writ-C No. 18896 of 2019 was dismissed.