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--------------- Print Magazine --------------
 
  May 2016
 
  April 2016
 
 
 
 
LEGAL ARTICLE

PREFERENTIAL RIGHT TO MINERAL CONCESSION

P. K. Basu Majumdar
The author is a Sr. Consultant of FoxMandal Little. He has authored a book 'Law of Mines & Minerals' published by Universal Law Publishing Co. Pvt. Ltd.

Introduction

Grant of mineral concession is regulated by the Mines and Minerals (Development & Regulation) Act, 1957 ('MMDR Act'), the Mineral Concession Rules, 1960 ('MC Rules') and the Mineral Conservation and Development Rules, 1988 ('MCD Rules'). The State is the owner of minerals, but under law, the State Government can only grant RP, PL or ML to any Indian national or Indian company, or a firm or other association of individuals, whose members are Indian citizens. The law excludes foreign companies from obtaining mineral concession in India.

Mineral is a very valuable non-renewable asset of the State. The statutes and guidelines set out the parameters for dealing with applications for mineral concessions. This article proposes to explain the principles and guidelines for according priority on the basis of 'first-in-time' application or 'capacity and capability' of applicant.

Preferential right of certain applicants under Section 11(1) of MMDR Act

If the holder of a RP or PL applies for PL or ML, such applicant can claim preferential right to the concession. But the State Government has to be satisfied that the permit holder or the licensee:

(i) has undertaken reconnaissance operations or prospecting operations to establish mineral resources in such land,

(ii) has not committed any breach of the terms and conditions of the RP or PL,

(iii) has not become ineligible under the provisions of the MMDR Act, and

(iv) has applied for grant of PL or ML within three months after the expiry of RP or PL, or within such further period as extended by the State Government.

The applicant for PL should ensure that he has filed RP report with the Geological Survey of India ('GSI') or the Indian Bureau of Mines ('IBM'). Similarly, the applicant for ML should file PL report with the State Government, and certify that he has filed PL data with the IBM.

'First-in-Time' Principle

The State Government need not notify 'virgin areas' before grant of mineral concession. For such areas 'the applicant whose application was received earlier, shall have the preferential right to be considered for grant of reconnaissance permit, prospecting licence or mining lease, as the case may be, over the applicant whose application was received later.' This is the 'first-in-time' principle embodied in Section 11(2) of MMDR Act. The exception to this rule is provided in the non obstante provisions of Section 11(5) of MMDR Act.

Areas which need to be 'notified' before grant of mineral concession

After excluding cases of 'preferential right' under Section 11(1), the State Government is left to deal with two types of cases:

(i) for 'non-notified' areas the general principle is 'first-in-time';

(ii) for 'notified' areas, the principle is 'capacity and capability', and provisions of Section 11(4) will need to be read harmoniously with the provisions of Section 11(2).

It is mandatory for the State Government to notify an area as being available for grant of mineral concession, if such area -

(a) is held, or had been held under RP or PL or ML, or

(b) had been reserved for any purpose other than mining, or

(c) is one in respect of which order granting mineral concession has been revoked, or

(d) had been notified under Section 17(2) or (4) of MMDR Act, or

(e) had been reserved under Section 17A of MMDR Act.

The notification would have to be gazetted, to fulfil the requirements of law. But it is also generally put on the website of the State Government. The Central Government has advised State Governments that any area for 're-grant' should be notified within 60 days of the area becoming available. The start date of the period for which the area is available for grant / re-grant would be not less than 30 days from the date of publication of the notice in the Official Gazette, and the period for receiving applications would not be less than 30 days from the start date given in (a) above. The entire process should therefore take 4 - 6 months.

In respect of all areas which are required to be notified, pre-mature applications cannot be entertained. They would, therefore, be treated as having been 'disposed of' in terms of Section 11(2) of the MMDR Act.

The statute creates a fiction that all applications against notification would be considered as having been received on the 'same day', if they are received-

(i) before date of notification and not 'disposed of' prior to date of notification; and

(ii) after the date of notification, but not later than validity period.

All applications received on the 'same day' are to be taken up for consideration simultaneously.

Again Section 11(2) of MMDR Act categorically states in the second proviso that the State Government may grant '.the reconnaissance permit, prospecting licence or mining lease, as the case may be, to such one of the applicants as it may deem fit'. Therefore, in respect of 'notified' areas, the 'first-in-time' does not hold. It has been observed by the Supreme Court-

"On a reading of section 11 as a whole one will realise that the provisions of sub-section (4) completely override those of sub-section (2). This sub-section preserves to the S.G. a right to grant a lease to an applicant out of turn subject to two conditions: (a) recording of special reasons and (b) previous approval of the C.G. ...."

To avail of the benefit of the 'capacity and capability' criteria for applications received on the 'same day', the applicant has to meet the yardstick of Section 11(3):

(i) any special knowledge of, or experience in, reconnaissance operations, prospecting operations or mining operations;

(ii) financial resources;

(iii) nature and quality of the technical staff employed or to be employed;

(iv) investment proposed to be made in the mines and in the industry based on the minerals.

Since inter-se weightage among these criteria has not been defined in the statutes, if more than one applicant has the above capabilities, the choice of applicant becomes difficult. The State Government would give a hearing to all applicants, and pass a reasoned order recommending acceptance of a particular application while not recommending the remaining applications, along with a comparative chart of the merits of all the applicants. The area notified for grant of a permit will not be sub-divided only to accommodate multiple applicants. The Central Government has issued guidelines laying down a detailed procedure in this respect.

'Special Reasons' under Section 11(5) of MMDR Act

Matters mentioned in Section 11(3) are relevant for choosing amongst applicants applying on the same day (actual or deemed) under Section 11(2). They are not the same as the 'special reasons' mentioned in Section 11(5) of the Act. As per Section 11(2) of the MMDR Act, the 'first-in-time' principle can be overridden only for 'special reasons' as mentioned in Section 11(5) of the Act. These 'special reasons' are to be objectively founded and not formulated on a case by case basis. They could relate to public interest and economic development of the State, or form part of the State Mineral Policy, or other duly notified policy document. The Central Government has suggested a list for adoption by the States:

(i) Exhaustion of captive mining capacity;

(ii) Special technology, ensuring conservation;

(iii) Ownership of the land of the recommended area;

(iv) Considering an adjoining area for mining in the interest of scientific and systematic mining and barrier loss.

The State Governments have been signing MOUs with parties to set up mineral based industries, with the promise to provide captive mines. But recently the Supreme Court has held that:

". the State Government has no authority under the MMDR Act to make commitments to any person that it will, in future, grant a mining lease in the event that the person makes investment in any project. Assuming that the State Government had made any such commitment, it could not be possible for it to take an inconsistent position and proceed to notify a particular area.."

This has created a piquant situation. The State Government cannot cite MOU commitment as a 'special reason'. However, in an earlier guideline issued by the Central Government, it has been suggested that -

". where a plant / industry has already been set up on the basis of the MOU but mineral concession has not yet been granted as per the MOU, provided that all such MOUs will be treated as a single class (without distinction of size, quantum of investment etc.), and the 'first-in-time' within this class will be accorded the first right.."

The Central Government has also suggested that the JV agreement or MOU should have special clauses covering, inter alia -

(i) Investment size and timelines/milestones;
(ii) Ore linkage for the industry;
(iii) Beneficiation / value addition;
(iv)Employment of technical staff/other employment potential;
(v) Local area development to be undertaken including infrastructure.

It has been suggested that when making its recommendation for prior approval to the Central Government, the State Government should also propose that the terms of the MOU / JV agreement be made part of the conditions of the ML under Rule 27(3) of MC Rules.

Remedy against order recommending other applicant for 'special reasons'

Knowledge of the factors and weightage that would be applied by the State Government while deciding on applications for mineral concession is important to make a successful application. However, in case an application is not recommended, such order could be regarded as an 'order' within the meaning of Section 30 of the MMDR Act and Rule 54 of MC Rules. An application for revision may be made to the Central Government under the above section.

 
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