Statutory royalty rates prevail over contractual stipulations upon removal of minerals from leased areas.

Pursuant to a 2011 Supreme Court order in W.P. (C) No. 562/2009 aimed at liquidating iron ore stocks in Karnataka, a Monitoring Committee was formed to conduct e-auctions.

Respondent No. 1 was the successful bidder in Auction No. 41 (14-15) for iron ore fines on June 27, 2014.

Per the tender agreement, the Respondent paid the sale price, taxes, and royalty at the then-applicable rate of 10%.

Clause 9 of the agreement also required a deposit of Rs. 50/tonne to meet future "variances in royalty".

On September 1, 2014, the Central Government amended the Second Schedule of the MMDR Act, increasing the royalty from 10% to 15%.

The Respondent shifted the ore in batches, some after the amendment date.

The Appellant subsequently deducted the 5% difference in royalty from the Respondent’s security deposit.

The High Court of Karnataka set aside this deduction, holding that royalty was frozen at the date the bid was accepted.

1. Whether the State could, on account of a subsequent change in law, charge a royalty rate higher than what was stipulated in the tender agreement.

2. Whether the liability to pay royalty under Section 9 of the MMDR Act crystallizes at the time of the auction or at the time of removal/dispatch of the mineral.

The Court primarily applied Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957, which mandates that the holder of a mining lease must pay royalty in respect of any mineral "removed or consumed" at the rate specified in the Second Schedule "for the time being".

It integrated the principle from Mineral Area Development Authority v. SAIL (2024), establishing that royalty is a statutory payment made for the privilege of removing minerals and is generally determined by the quantity removed.

Section 3(aa) of the MMDR Act defines "dispatch" as the removal of minerals from the leased area, which is the triggering event for royalty liability.

The Court reasoned that for Section 9 to apply, three conditions must be met: the existence of a mining lease, the removal or consumption of minerals, and a party covered by the statute.

While the Respondent argued the contract "froze" the royalty at 10%, the Court held that royalty is a statutory import, not a matter of contractual equity.

Applying Mineral Area Development Authority, the Court concluded that royalty is legally linked to "dispatch" or "removal".

Since the minerals were moved/dispatched after the September 1, 2014 amendment, the statutory rate "for the time being" was 15%.

The Court clarified that the word "applicable" in previous judicial orders referred to the rate at the time of removal, not at the time of the auction.

Consequently, any contractual clause attempting to limit liability must yield to the statutory amendment of the Second Schedule.

It held that the Appellant was legally justified in deducting the additional 5% royalty from the security deposit because the statutory liability for royalty crystallizes upon the removal of the mineral, not the acceptance of the bid.

The Court noted that the Respondents chose to move the minerals after the rate was enhanced and thus cannot escape the statutory obligation.

All pending applications were disposed of.