2011 (7) TMI 1300 - SC - Indian Laws

Interest on arrears of royalty - The first respondent is the holder of a mining lease for limestone. Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 ( Act ) deals with Royalties in respect of mining leases. Sub-section (2) requires the holder of a mining lease to pay royalty in respect of any mineral removed or consumed by him from the leased area at the rate for the time being specified in the Second Schedule to the Act. under Sub-section (3), Second Schedule was amended and the rate or royalty for limestone was increased from ₹ 10/-per tonne to ₹ 25/- per tonne by Central Govt. the first respondent in these appeals ( contesting respondents ) filed writ petitions challenging the constitutional validity of section 9(3) of the Act and the notification increasing the rate of royalty from ₹ 10 to ₹ 25 per tonne. In the case of J. K. Udaipur Udyog Ltd, the High Court made an interim order as in the other cases, with an additional condition that in case the said writ petitioner ultimately failed in the writ petition, the difference amount due from the writ petitioner shall be recovered with interest at the rate of 18% per annum. HELD THAT - whenever there is an interim order of stay in regard to any revision in rate or tariff, unless the order granting interim stay or the final order dismissing the writ petition specifies otherwise, on the dismissal of the writ petition or vacation of the interim order, the beneficiary of the interim order shall have to pay interest on the amount withheld or not paid by virtue of the interim order. we are of the view that the appellants will be entitled to interest at 18% per annum in respect of royalty that became due between 17.2.1992 and the date of dismissal of their respective writ petitions. For the period subsequent to the dismissal of the writ petitions, the contesting respondents will be liable to pay interest on the said amount, at the rate of 24% per annum till date of payment. Whether Rule 64-A vests any discretion in the state government to charge interest at a rate less than 24% per annum in appropriate or deserving cases - HELD THAT - It is true that annual interest at 24% per annum appears to be marginally higher than the standard market lending rate of interest. But it is not penal in nature. Revenue from mining constitutes one of the major sources of non-tax revenue of the State Governments. Mining lessees are expected to pay the mining dues promptly and without default. If a lesser rate of interest is provided under the Rules, it may lead to unscrupulous lessees indulging in delaying tactics. The intention of Rule 64A is to discourage practices that may be detrimental to recovery of revenue, by providing for a higher rate of interest.

Issues Involved:
1. Consent by Advocate General regarding interest rate.
2. Liability to pay interest during the period of interim stay.
3. Discretion of the State Government under Rule 64-A to charge interest less than 24%.
4. Appropriate rate of interest to be awarded.

Issue-wise Detailed Analysis:

Re: Question (i) - Consent by Advocate General regarding interest rate:
The first issue was whether the Advocate General had consented to an interest rate of 12% per annum. The court found that the learned Single Judge's order was not based on any consent or concession by the Advocate General. The Advocate General had stated that the State Government was entitled to interest at 18% per annum, but the learned Single Judge reduced it to 12% based on the trend of Supreme Court decisions. The Division Bench's assumption that the order was based on a concession was erroneous, and thus, the order could not be sustained.

Re: Question (ii) - Liability to pay interest during the period of interim stay:
The second issue was whether the respondent could claim interest for the period covered by the interim order. The court held that the principle of restitution requires that interest be paid for the period of stay when the stay is ultimately vacated. This principle was supported by previous decisions in Kanoria Chemicals and Industries Ltd. vs. UP State Electricity Board and South Eastern Coalfields Ltd. vs. State of M.P. The court emphasized that upon dismissal of the writ petition or vacation of the interim order, the beneficiary of the interim order must pay interest on the amount withheld.

Re: Question (iii) - Discretion of the State Government under Rule 64-A to charge interest less than 24%:
The third issue was whether Rule 64-A vests discretion in the State Government to charge interest at a rate less than 24% per annum. The court concluded that Rule 64-A does not provide such discretion. The word "may" in Rule 64-A was interpreted as giving the State Government an option to either determine the lease or charge interest at 24%, but not to charge a lower rate of interest. The standard form of the lease (Form K) also supports this interpretation, mandating a 24% interest rate on delayed payments.

Re: Question (iv) - Appropriate rate of interest to be awarded:
The final issue was determining the appropriate rate of interest. The court noted that Rule 64-A categorically provides for a 24% per annum interest rate on delayed payments. However, considering the peculiar circumstances, including the submission by the Advocate General and the understanding of the parties, the court decided that the interest rate should be 18% per annum from 17.2.1992 to the date of dismissal of the respective writ petitions. For the period after the dismissal of the writ petitions, the interest rate would be 24% per annum until payment.

Conclusion:
The appeals were allowed in part, modifying the rate of interest as follows:
1. From 17.2.1992 to the date of dismissal of the respective writ petitions, the interest rate shall be 18% per annum.
2. From the date of dismissal of the writ petitions until the date of payment, the interest rate shall be 24% per annum.

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