1964 (9) TMI 87 - HC - Indian Laws

Summary

Issues Involved:
1. Cancellation of the quarry lease.
2. Rejection of the application for the transfer of the lease.
3. Alleged failure to maintain proper accounts.
4. Alleged unauthorized transfer of the lease.
5. Opportunity for hearing and procedural fairness.
6. Validity of the grounds for rejection of the transfer application.

Detailed Analysis:

1. Cancellation of the Quarry Lease:
The lease was canceled on two grounds: unauthorized transfer of the lease and failure to maintain proper accounts. The court found that the agreements between the lessee and third parties did not constitute a legal transfer or assignment of the lease. The agreements were for the extraction and sale of limestone, which were not prohibited by the lease or the relevant rules. Thus, the ground of unauthorized transfer was without foundation. Regarding the failure to maintain accounts, the court noted that no notice was given to the lessee to remedy the breach within 30 days as required by Rule 25(1)(xvi) of the Madhya Pradesh Minor Mineral Rules, 1961. Therefore, the cancellation on this ground was illegal and contrary to the statutory rule.

2. Rejection of the Application for the Transfer of the Lease:
The lessee's application for transferring the lease was rejected on the grounds of "strong speculations in the proposed transaction." The court found this reason to be vague and unsupported. The agreements in question were legal and did not violate Rule 18 or Condition No. 9 of the lease. The refusal to grant sanction for the transfer was arbitrary and lacked a rational connection to the property leased or the character of the proposed assignee. The court held that the State Government failed to exercise the discretion given to it by Rule 18 properly.

3. Alleged Failure to Maintain Proper Accounts:
The court noted that the lease was subject to Rule 25(1)(viii) and (xvi) of the Madhya Pradesh Minor Mineral Rules, 1961, which required the lessee to maintain correct accounts and provided a specific procedure for addressing breaches. No notice was given to the lessee to remedy the breach, making the cancellation on this ground illegal. The court emphasized that the lessee should have been given an opportunity to remedy the breach within 30 days before any action could be taken.

4. Alleged Unauthorized Transfer of the Lease:
The court found that the agreements between the lessee and third parties did not amount to a legal transfer, assignment, or subletting of the lease. The agreements were for the extraction and sale of limestone and did not involve the lessee giving up his rights or privileges under the lease. The State Government's contention that these agreements constituted a transfer was rejected.

5. Opportunity for Hearing and Procedural Fairness:
The court noted that the lessee was not given a proper opportunity to present his case or produce his account books. The Sub-Divisional Officer, Additional Collector, and Commissioner did not provide the lessee with an opportunity for a personal hearing. The lack of procedural fairness further invalidated the cancellation of the lease.

6. Validity of the Grounds for Rejection of the Transfer Application:
The court held that the grounds for rejecting the transfer application were arbitrary and lacked a rational basis. The State Government's refusal to grant sanction was based on an incorrect interpretation of the agreements and was not in accordance with the principles of reason and justice. The court directed the State Government to reconsider the lessee's application for transfer according to law.

Conclusion:
The court allowed both petitions, quashing the orders dated 7th April 1964 and 20th February 1964. The State Government was directed to determine the lessee's application for the transfer of the lease according to law. The lessee was awarded costs for the two applications, and the outstanding security deposit was ordered to be refunded.