Computation Of Royalty Within Executive's Domain, Courts' Interference Barred Unless Decision-Making Process Is Illegal : Supreme Court

Noting that the computation of royalty on minerals is purely a policy decision within the executive's domain, the Supreme Court dismissed the plea challenging the government's change in the royalty calculation method. The Court stated that unless the policymaking authority has overstepped its limits, such decisions cannot be challenged, as they require specialized expertise that judges do not possess.

“it is clear that the whether a particular policy is wise or that a better public policy can be evolved is purely the domain of the executive of the state. Matters such as computation of royalty or the levy of such royalty on different minerals is entirely a matter of policy making which is beyond the expertise and domain of the courts. It is no longer res-integra, that a question as regards the validity of a particular policy is concerned with reviewing not the merits of such decision or policy, but the very policy making process itself.”, the bench led by CJI DY Chandrachud and comprising Justices JB Pardiwala and Manoj Misra held.

"The duty of the courts is to confine itself to the question of legality and its concern should be whether a policymaking authority exceeded its powers, whether it committed an error of law or committed a breach of the rules of natural justice or reached a decision which no reasonable authority would have reached or whether it has abused its powers.”, the court added.

The petitioner, in this case, challenged the legality and fairness of royalty calculations for mineral extraction under the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (MCR, 2016), and the Mineral Conservation and Development Rules, 2017 (MCDR, 2017).

The petitioner argued that the change in the methodology of royalty computation led to a "compounding" effect in the current royalty computation method, where royalty paid in one month was factored into subsequent months, increasing their financial burden and creating a cascading effect. This, they claimed, was arbitrary and violative of Article 14 of the Constitution.

Rejecting the petitioner's contention, the judgment authored by Justice Pardiwala emphasized that the judiciary should not interfere with economic policies unless they are manifestly arbitrary or unconstitutional. The Court reaffirms the legislature's discretion to devise policies on royalty without judicial interference, particularly in areas involving complex economic considerations.

“The doctrine of judicial restraint, which is central to this discussion, emphasizes that courts should exercise caution and avoid involvement in policy decisions, as these are complex judgments that require a balancing of diverse and often competing interests. Policies are crafted based on thorough analysis of social, economic, and political factors, considerations beyond the court's purview. The court is tasked with ensuring that policies do not breach constitutional provisions or statutory limits; however, they should not replace policymakers' judgments with their own unless absolutely necessary.”, the court observed.

“The duty of the court in policy-related cases is primarily to determine whether the policy falls within the scope of the authority granted to the relevant body. If the policy decision is within the executive's legal authority and has been made following proper procedures, the courts should defer to the expertise and discretion of the policy-makers, even if the policy appears unwise or imprudent. This restraint ensures that the courts do not impose its own perspective on policy matters that are rightly the responsibility of other branches.”, the court added.

The Court observed that "at the relevant time in respect of some of the minerals, royalty was being computed without inclusion of the royalty, DMF and NEMT contributions previously paid, however, that does not mean that the Central Government's power is restricted and that the Central Government cannot alter the mode of computation of royalty."

“Merely, because the methodology or formula for computation of royalty has been altered from what it was under the erstwhile MCR, 1960 will not make the new mechanism or methodology unreasonable or arbitrary and liable to be struck down.”, the court reasoned.

The Court observed that the Explanation added to Rule 38 of MCR does not violate the main provision and termed it as mere clarificatory in nature that meant to explain or clarify certain ambiguities that may have crept into the statutory provision earlier.

“Merely because the Explanation(s) to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 provides that there shall be no deduction of royalty, payments to the District Mineral Foundation and payments to the National Mineral Exploration Trust from the gross amount for the purpose of computing sale value does not in any manner makes the aforesaid Explanation in derogation of the main provision. The aforesaid Explanation(s) are merely clarificatory in nature inasmuch as it explains the ambiguities in the main provisions of Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017, and thus, they cannot be said to exceed the ambit of the main provisions or in contravention of the statutory scheme.”, the court observed.

Acknowledging that the legislature itself has recognized the anomaly in the provisions regarding the compounding of royalty for calculating the average sale price, the Court granted the Union of India two months time as one final opportunity to review the computation mechanism for determining royalty rates for all other minerals under the contested provisions.

"The Registry shall notify this matter before an appropriate Bench after a period of two months from the date of pronouncement of this judgment to report compliance of our directions", the court directed.

Appearance:

Dr. A.M. Singhvi, senior counsel for the petitioner

Mr. Shailesh Madiyal, Additional Solicitor General for the respondents

Case Title: KIRLOSKAR FERROUS INDUSTRIES LIMITED & ANR VERSUS UNION OF INDIA & ORS., WRIT PETITION (C) NO. 715 OF 2024

Citation : 2024 LiveLaw (SC) 880

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