2016 (2) TMI 537 - SC - Indian Laws

Whether an illegal transfer of mining lease was involved - Held that - The original lessee gave declaration while seeking transfer, that no consideration was received which though apparently correct was actually false as the subsequent transaction of sale of shares was integral part of the first transaction of transfer of lease to private company which soon thereafter became subsidiary of another company. The said real transaction cannot be ignored to find out the substance. Thus, acquisition of mining lease contrary to rules is void. Requirement of previous consent cannot be ignored nor taken to be formality subject only to pay dead rent or agreeing to follow same terms. The lessee privately and unauthorisedly cannot sell its rights for consideration and profiteer from rights which belong to State. There is no warrant for any contrary assumption. The State has to exercise its power of granting or refusing permission for transfer of lease in a fair and reasonable manner but following doctrine of public trust. As already seen, in the present case, the original lessee sought transfer merely by disclosing that the partnership firm was to be transformed into a private limited company with the same partners continuing as directors and there was no direct or indirect consideration involved. It was specifically declared that no pecuniary advantage was being taken in the process which is clearly false. The permission to transfer the lease in favour of a private limited company was granted on that basis. Thus, it was a case of suppression veri and suggestio falsi. Once it is held that transfer of lease is not permissible without permission of the competent authority, the competent authority was entitled to have full disclosure of facts for taking a decision in the matter so that a private person does not benefit at the expense of public property.

Issues Involved:
1. Legality of the transfer of mining lease.
2. Validity of the transformation of a partnership into a company and subsequent transfer of lease rights.
3. Justification for the State's cancellation of the lease.
4. Application of the doctrine of lifting the corporate veil.
5. Compliance with Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986.

Issue-wise Detailed Analysis:

1. Legality of the transfer of mining lease:
The State of Rajasthan challenged the High Court's quashing of its order canceling the mining lease transfer. The core question was whether the transaction involved an illegal transfer of mining lease. The partnership firm GLKU held the mining lease and applied for its transfer to GLKUPL, a newly formed private limited company. The State argued that the subsequent sale of GLKUPL's entire shareholding to UTCL for Rs. 160 crores constituted an unauthorized transfer of the mining lease.

2. Validity of the transformation of a partnership into a company and subsequent transfer of lease rights:
GLKU claimed that the transfer was merely a change in business form, as the partners of the firm became the directors of the company, with no illegal benefit or premium involved. However, after the transfer, GLKUPL sold its entire shareholding to UTCL, which the State argued was a disguised sale of the mining lease. The High Court initially found no violation of Rule 15(1)(b) of the Rajasthan Minor Mineral Concession Rules, 1986, as the company, despite becoming a subsidiary of UTCL, remained a distinct legal entity.

3. Justification for the State's cancellation of the lease:
The State issued a show cause notice and subsequently canceled the transfer order, arguing that the change in directors and shareholding amounted to an indirect transfer of the mining lease, violating Rule 15. The High Court, however, ruled that the mere change in shareholding did not constitute a transfer of the lease. The Division Bench upheld this view, emphasizing that the assets and properties of the company, including the mining lease, belonged to the company and not its shareholders.

4. Application of the doctrine of lifting the corporate veil:
The Supreme Court found that the transaction was a device to circumvent the legal requirement for transferring the mining lease. The Court emphasized the principle of lifting the corporate veil to reveal the true nature of the transaction, which was an unauthorized sale of the mining lease. The Court cited precedents where lifting the veil was necessary to prevent fraud or improper conduct.

5. Compliance with Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986:
The Supreme Court concluded that the transfer of the mining lease without the competent authority's consent was void under Rule 15. The original lessee's declaration that no consideration was involved was found to be false, as the subsequent sale of shares was integral to the transfer of the lease. The Court held that the lessee could not trade mining rights for private profit, and the State was justified in canceling the lease.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's judgment, and directed the State of Rajasthan to frame and notify its policy regarding the transfer of mining leases. The State was instructed to pass an appropriate order concerning the mining lease in question, maintaining the status quo until a decision was made. The Court underscored the necessity of transparency and adherence to the doctrine of public trust in managing mining rights.

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