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The Supreme Court comprising of the Bench of Justices AK Sikri, S Abdul Nazeer, and MR Shah has clarified that clarified that States cannot prohibit the transportation of minerals across State borders after they have been legally excavated with the permission of the State.
The court taking Judgement of Gujarat High Court has affirmed that “in view of the judgments of this Court in M.P.P. Kavery Chetty and K.T. Varghese…it has been categorically held that power of the State Government under Section 15 of the MMDR Act [Mines and Minerals (Development and Regulation) Act, 1957] does not include control over minor minerals after they are excavated.“
The respondents in the case included the Central Government as well as private respondents who were the original petitioners before the Gujarat High Court in the matter.
Case Facts
The genesis of the case lay in a resolution passed in 2010, by which a prohibition was imposed on the transport of ordinary sand excavated in Gujarat to other States in India and overseas. The same year, the Gujarat government incorporated this ban in the Gujarat Minor Mineral Rules, 1966 through the insertion of Rule 44-B.
The 1966 rules were replaced two months later by the Gujarat Minor Mineral Concession Rules, 2010. Importantly, Rule 71 of the new Rules provided for the same transport ban as laid down in the earlier Rule 44-BB.
These amendments were made invoking Section 15 read with Section 23C of the MMDR Act. These provisions confer on State governments the power to frame rules to regulate minor minerals. This also includes the power to introduce measures to guard against the illegal mining, storage, and transportation of minor minerals.
By these provisions, the MMDR Act delegates the regulation of minor minerals to individual States, while the power to regulate major minerals is vested with the Central Government.
The 2010 Gujarat State amendments were challenged by private players in the mining industry before the Gujarat High Court. The High Court, in turn, allowed their petitions and quashed the amendments.
The High Court found that the rule making the power of the State government under MMDR Act cannot be stretched to allow the direction prohibition of movement of minerals so as to impinge upon the freedom guaranteed by Article 301 of the Constitution. Article 301, falling under Chapter XIII of the Constitution, deals with the freedom of interstate trade, commerce, and intercourse.
The appeal before Supreme Court
In the Gujarat Government’s appeal against this High Court verdict, Advocate Pritesh Kapur contended that the State’s power to regulate minor minerals under Section 15 and 23A of the MMDR Act must be broadly interpreted. It was argued that these provisions conferred on the State the power to prohibit its inter-state and international transport and sale in public interest as well.
However, a contrary stance was taken not only by the original petitioners but also by the Central Government. ASG Madhavi Divan contended that the rule-making powers of the State government do not extend to the regulation of minerals that have already been excavated.
It was further argued that even the Central Government does not have the power to frame such rules. It was submitted that such restrictions would violate Article 301 of the Constitution. Allied submissions were also forwarded by Advocate DN Ray, appearing on behalf of the original petitioners.
Importantly, it was pointed out that two three-judge Bench decisions of the Supreme Court, i.e. State of Tamil Nadu v MPP Kavery Chetty and KT Varghese & Ors. v State of Kerala & Ors, already lay down that once excavated, the State cannot restrict the movement of mineral beyond its borders.
Supreme Court ruling
The Supreme Court ruled in favor of the Central Government and the original petitioners, agreeing that the law has already been laid down in the MPP Kavery Chetty and KT Varghese cases. In passing the ruling, the Court also recorded disapproval for the contrary views adopted earlier by the Andhra Pradesh High Court in C Narayana Reddy and etc v Commissioner of Panchayat Raj and Rural Employment, A.P., Hyderabad and others, and the Madras High Court in D Sivakumar v Government of Tamil Nadu.
Affirming the Gujarat High Court judgment challenged before it, the Bench held,
“In the instant appeals, which concern the sale of already excavated minerals that belong to the lessee, a prohibition by the State Government on the sale thereof outside the State is not permissible under the MMDR Act.“
The Court further clarified that the State’s power to frame rules is against transportation and storage of illegally mined minerals. It does not have the power under Section 23C to regulate the transportation of legally excavated minerals.
“It is clear that it is the transportation and storage of illegal mining and not the mining of minor minerals like the sand which is legal and backed by duly granted license, which can be regulated under this provision. Therefore, no power flows from this provision to make a rule for regulating the transportation of the legally excavated minerals.”
In arriving at this conclusion, the Bench agreed that the challenged prohibition on transport of minerals across State borders violated Article 301 of the Constitution. However, it observed that such restrictions may be introduced either in public interest as per Article 302, or if there is a scarcity situation in a State justifying the same, as per Article 303.
No such justification was provided by the State of Gujarat in this case. As observed in the judgment,
“… the prohibition on the transport or sale of the already mined minerals outside the State has no direct nexus with the object and purpose of the MMDR Act which is concerned with conservation and prudent exploitation of minerals…
… In order to justify any ‘preference’ or ‘discrimination’ under Article 303, a scarcity of goods would have to be made out. It is a matter of record that the Study Group’s report on which reliance is placed by the appellant focuses on the need to restrict the export of sand outside India and not within India. In any case, nothing prevents the appellant from restricting the quantum of sand being excavated.“
Therefore, the Bench concluded,
“… once the appellant State permits sand to be excavated, neither can it legally restrict its movement within the territory of India nor is the same constitutionally permissible. Likewise, there is no restriction on the State importing sand from other states.
If it is the case that the demand of any State is not being met, it may purchase sand from other states. In any event, the market will dictate trade in sand inasmuch as it may make no business sense for a mining company to transport and sell its sand in a far away destination after incurring large costs on transportation.“
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