Andhra Pradesh High Court Upholds Amendments Introducing Auction Based System for Grant Of Minor Mineral Leases

The Andhra Pradesh High Court, on 20.03.2025, set aside a bunch of petitions challenging the amendments made to the A.P. Minor Mineral Concession Rules, 1966 (“the 1966 Rules”). These amendments sought to fundamentally alter the manner of granting minor mineral leases by shifting from a first-come-first-serve system to an auction-based system.

A Division Bench of the High Court comprising Chief Justice Dhiraj Singh Thakur and Justice R. Raghunandan Rao, clarified that the amendments were prospective in nature and the State Government possessed the requisite authority to alter the system of granting minor mineral leases in such a manner.

Background

The Government of Andhra Pradesh, in exercise of powers granted under Section 15(1) of the Mines and Minerals (Development and Regulation) Act, 1957 (“1957 Act”), had issued the 1966 Rules. Significant amendments were introduced by virtue of G.O. Ms. No.13 and G.O. Ms. No.14 (“impugned GOs”), Industries and Commerce (Mines-III) Department Industries and Commerce (Mines-III) Department, dated 14.03.2022.

These amendments fundamentally altered the system of granting minor mineral leases by introducing the following changes, which formed the core of the petitions- (i) the system of first-come-first-serve was substituted by auction based grants of quarry leases, where the bidder, offering the highest premium, would be granted the lease; (ii) where auctions could not be conducted, the old system for grant of leases would be followed.

However, the premium would be fixed on the basis of the premium which came to be offered in the auctions conducted in the district for the same minerals, (iii) all pending applications filed for grant of leases were rendered ineligible, except those with letters of intent by 14.03.2022, and (iv) successful bidder was required to deposit security three times the annual dead rent.

A bunch of writ petitions were filed challenging these amendments introduced by the impugned GOs.

The petitioners primarily challenged the State Government's authority to change the lease grant system, arguing that the 1957 Act neither provides for auctions nor authorises the State under Section 15 to alter the system, much less by way of auction. They contended that amending the 1966 Rules in order to introduce an auction based system went beyond what the 1957 Act authorises.

Additionally, they argued that the Rules would have to be treated as retrospective as they affected the vested right of the petitioners to be granted a lease by virtue of applications made by them and that the State Government had no choice except to grant mineral concessions to the application which was first in line. They further argued that the Granite Conservation and Development Rules, 1999, and Marble Development and Conservation Rules, 2002, issued by the Central Government, should prevail over the 1966 Rules framed by the State Government in case of a conflict.

Some petitioners even argued against the exclusion of Mutually Aided Cooperative Societies from mineral concessions under the The Minor Mineral (Auction) Rules, 2015. Lastly, the petitioners challenged the requirement of a security deposit three times the annual dead rent, claiming it to be arbitrary and violative of Section 9A of the 1957 Act, and alleged that the amended Rules granted excessive discretionary power to officials, thereby, leaving ample scope for misuse.

Authority of the State Government

With respect to the issue of the State Government not possessing the requisite authority to introduce such amendments, the Court held that Section 15 of the 1957 Act authorises the State to change the method of grant of leases in relation to minor minerals. Reliance was placed on the case of D.K. Trivedi and Sons Vs. State of Gujarat [1986 (Supp) SCC 20], where the Supreme Court, while dealing with Section 15 of the 1957 Act and the Rules made thereunder, clarified that Section 13(2) stipulates guidelines for the State Governments to follow in framing the rules under Section 15(1), and the only difference between the ambit of power contemplated under Section Section 13 and under Section 15 is that the Central Government exercises the power in respect of minerals other than minor minerals and the State Governments, due to local significance, exercise power in respect of minor minerals.

The Court held, “The 1957 Act, did not provide for any particular method or system for granting mineral concessions for minor minerals. The method of granting mineral concessions for minor minerals, on a first-cum-first serve basis was not stipulated under the provisions of the 1957 Act. This system was brought into effect under the 1966 Rules. Once, it has been accepted that the State Government, by way of Rules, made under Section 15 of 1957 Act, could establish a system of first-cum-first serve basis, for grant of leases and a system of priority among the four categories mentioned above, it cannot be said that the State does not have any further power to change a system which was brought in, by way of the very same rules.”

Whether the amendments have retrospective application

Rejecting the contention that the applicants had a vested right for grant of a mineral concession, the Court held that Section 10(3) of the 1957 Act gave enough discretion to the State Government to grant or refuse mineral concession. “The word “may” is sufficient to hold that the discretion of the State Government to grant or refuse a mineral concession, to an applicant, is wide enough to empower the State Government to reject applications for any reasons including the non compliance of the provisions of the Act and Rules.”

The Court further held, “It may also be noted that the amended Rule 9, while rendering pending applications ineligible, had also saved those applications which have been accepted in-principle. The language of Rule 9 places applications into two categories. The first category is that those applications which are processed and accepted, in-principle, subject to furnishing necessary clearances, documentation and dead rent/security deposit. The second category is that all those applications which do not fall into the first category. It is only the first category of applications, that can claim a vested right in as much as the competent authority had taken an in principle decision of grant of mineral concession. Since the amended Rule 9, saves all applications which have reached the stage of issuance of letter of intent, it cannot be said that the amended Rule 9 is retrospective.”

Conflict with Central Rules

The Court also held that a conflict between the Central Rules (Granite Conservation and Development Rules, 1999, and Marble Development and Conservation Rules, 2002) and the 1966 Rules (issued by the State Government) would arise only when both the Rules are not able to operate together. The Central Rules primarily dealt with the manner in which the mining or excavation activity was to be carried out and subsequently left the regulation of grant of leases for these minerals to the Rules formulated under section 15 of the 1957 Act. Hence, the Court failed to highlight any apparent conflict between the Central Rules and the 1966 Rules. “In the absence of such a conflict, the 1966 rules would continue to operate, even in relation to regulation of grant of mineral concessions for granite and marble.”

Increased Security Deposit and Alleged Misuse by Officials

With respect to this issue of excessive increment in the security deposit, the Court observed that the petitioners have not placed any material before the Court to demonstrate that there was an increase in the dead rent/royalty in the three years before the issuance of G.O.Ms.No.13 or G.O.Ms.No.14. In the absence of any such material, it cannot be said that the increase in the security deposit, to three years of dead rent, would amount to an increase in premium.

"The question of what would be a reasonable amount as security deposit and what would be the form of security deposit are matters of policy which would have to be left to the discretion of the competent authority. It would not be appropriate for this Court, to substitute its judgment for determining, what would be a reasonable security deposit,” it held.

Lastly, the Court observed that the mere possibility of misuse or even actual misuse could not be considered a ground for setting aside a statutory Rule.

Accordingly, the Court dismissed the batch of petitions.

Case Details:

Case Number: W.P. No. 19459/2022

Case Name: Federation of Minor Minerals Industry (femm) and Others v. The State of AP and Others

Date: 20.03.2025

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