Madhusudan Choudhary and Others vs State of Bihar and Others

N. Pandey, J.—The Petitioners, who are contractors by profession, were engaged in various types of civil, mechanical, structural and electrical works. For execution of such works, they used to supply different minor minerals including sand and grabels.

It appears, from the pleadings of the parties, that the Petitioners entered into different agreements with the Respondent authorities to carry out contract works like construction of drainage, concrete, barrel work, earth work, construction of C.D. Works as also supply of materials.

It appears, Respondent No. 1 issued letters to different Corporations owned by the State with a request that final bills of the contractors can only be paid after production of Clearance Certificate from the concerned District Mining Officers/Assistant Mining Officers to satisfy that royalties were paid with respect to the minerals supplied and used by them in execution of contract works. In compliance of the aforesaid direction, the District Mining Officers of the concerned districts issued letters to all concerned for necessary compliance. Therefore, when the Petitioners failed to furnish Clearance Certificates or produce any material to show that royalty was paid for such minerals, the Respondents deducted the amount of royalty and cess from their bills in terms of the agreements.

It appears, several writ applications including present cases were filed before this Court challenging the authority of the State Government to realise and deduct the amount of royalty, as defined, under the provisions of Bihar Minor Mineral Concession Rules, 1972 (hereinafter referred to as ''the Rules''), from such contractors. A prayer was also made that the Respondents be directed to refund the amount of royalty so deducted from the bills. The cases were ultimately heared and having regard to several decisions of this Court, the writ aplications were allowed holding that no amount of royalty can be charged from the contractors and accordingly, direction was issued that the amount of royalty, deducted from the bills of the contractors be refunded.

The State Government feeling aggrieved, preferred Civil Appeal Nos. 2749-52 of 1988 and other analogous cases before the Supreme Court. It was urged that in view of Rule 40(8) of the Rules, as inserted in 1985, the writ Petitioners were liable to pay royality on the minerals used by them in execution of contract works. It was next argued that these contractors had themselves entered into agreements, while accepting the contract that they would pay all the dues, tolls, royalties and other taxes on minerals, supplied or used by them. The Supreme Court having noticed that all such submissions either were not made before the High Court or were not taken into consideration, therefore, for the ends of justice it was proper that the matter be heard afresh. Accordingly, the order of this Court were set aside to the extent, as indicated above and the matter was remanded to this Court for consideration on merit.

From the facts, brought on the record, it is clear that admittedly the Petitioners are neither lessess nor sub-lessess or licensees under the Mines and Minerals (Regulation and Development) Act, 1957 (hereinafter referred to as the Act). Their grievance is that the State Government has no authority either by issuing circulars or even framing rules to make the Petitioners liable for payment of royalty on minerals supplied or used by them in execution of works contract. It is stated that the effect of such notifications, circulars or any interpretation of the provisions of Sub rules (8) or (10) of Rule 40 of the Rules, so as to hold the contractors liable to pay royalty will make such provisions ultra vires to Section 15(1) (3) and 21(5) of the Central Act.

For proper appreciation of the controversies involved in these cases, it would be advisable to notice some of the relevant provisions of the Central Act as well as the Bihar Rules.

Section 15(1) of the Act, which authorises the State Government to frame rules to grant lease and regulate mines, with respect to minor minerals, reads thus:

The State Government may, by notification in the official Gazette, make Rule for regulating the grant of quarry leases and mining leases or other mineral concessions in respect to minor minerals and for purpose connected therewith.

Sub-section (3) of Section 15 says that holder of a mining lease or any other mineral concessions granted under the provisions of Rule, made under Sub-section (1) shall pay royalty, It reads as follows:

The holder of a mining lease or any other mineral concessions granted under any rule made under Sub-section (1) shall pay (royalty or dead rent, whichever is more) in respect of minor minerals removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee at the rate prescribed for the time being in the rules framed by the State Government in respect of minor minerals:

Section 21 is a enabling provision to impose penalty against those who are found contravening the provisions of Sub-section (1) of Section 4. It says whenever any person raises, without any lawful authority, mineral from any land, the State Government may recover from such person the minerals so raised or if such mineral has been disposed of, the price thereof and may also recover rent, royalty or tax, as the case may be.

The State Government, therefore, having regard to the provisions of Sections 15 and 21 of the Central Act, in order to check unauthorised extractions and removal of minor minerals, substituted Sub-rules (8) and (10) of Rule 40 of the Rules. Sub-rule (8) of this Rule provides:

Whoever removes minor minerals without valid lease/permit or (sic) whose behalf such removal is made otherwise than in accordance with these Rules he be an agent, Manager, contractor, or a sub-lessee shall be presumed to be a party to the illegal removal of the minor mineral and shall be liable to pay the price thereof and the Government may also recover from such person rent, royalty or taxes as the case may be, for the period during which the land was occupied by such person without any lawful authority without prejudice to other action being taken against him under these Rules or any other law for the time being in force.

Sub-rule (10) empowers the authorities to prevent evasion of royalty and says that a works contractor shall purchase minerals from lessees/permit holders and authorised dealers and no works Department shall receive bills which a works contractor submits without any clearance certificate from the concerned mining authorities. The relevant part of this provision is reproduced hereunder:

To prevent evasion of royalty it is provided that works contractor shall purchase the minerals from lessee/permit holder and authorised dealers only and no works Department shall receive the bill which the works contractors submit to recover cost etc. of mineral used by them in completion of the works of the work Department under any agreement from the works contractor if the said bill is not accompanied by an affidavit in Form ''M'' with particulars in Form ''N'' of these rules along with a photocopy of the said affidavit and particulars. It shall be the duty of the officer who receives or on whose behalf the said bill is received to send the photocopy of the Affidavit and particulars to the District Mining Officer/Assistant Mining Officer within whose jurisdiction the mineral was allegedly purchased, for verification.

If contents of the said affidavit on verification by the concerned District Mining Oficer/Assistant Mining Officer is found to be false either wholly or partly it shall be presumed that the concerned mineral was obtained by illegal mining and in that event the said District Mining Officer/Assistant Mining Officer shall take action as prescribed in these rules against the maker of the said affidavit.

Provided that if the works contractor deposits or pays the royalty in respect of the mineral so consumed/supplied by him as shown in the aforesaid affidavit and particulars the said District Mining Officer/Assistant Mining Officer in his discretion may not take action as prescribed in this rule.

It is contended that there is no allegation that minor minerals used in execution of contract works were removed or extracted by the Petitioners or they are holding mining leases or any other mineral concessions granted under the Rules. Therefore, in absence of such a finding, the Respondents have no authority to deduct the amount of royalty from the bills. In support of such submission, learned Counsel placed reliance to the judgment of the Supreme Court in the case of India Cement Ltd. and Others Vs. State Of Tamil Nadu and Others, It was held that Central Act provides that royalty can be charged only from a lessee or any other person, mentioned u/s 15(3) of the Act. Therefore, the State Government has no authority to realise from any other person except those who are covered u/s 15(3) of the Act. He contended that in this regard reference can also be made to the following decisions in the cases of (i) Baijnath Kadio Vs. State of Bihar and Others, (ii) Hukum Chand Shyam Lal v. Union of India and Ors. (iii) Harivansh Lal Mehra Vs. State of Maharashtra, Hukam Chand Shyam Lal Vs. Union of India (UOI) and Others, and D.K. Trivedi and Sons v. State of Gujarat and Ors. (AIR 1986 SC 1323) to show that only those who use the land to extract, remove or to transport minerals can be held liable for royalty and not a purchaser from such persons. Therefore, any interpretation of the Rules to justify deduction of royalty from the bills of the Petitioners would be illegal and without jurisdiction.

It is contended that this Court also in the cases of Tata Engineering and Locomotive Company Limited v. The district Mining Officer and Cess Collector (Mining) and The State of Bihar (1981 PLJR 86) and Monghyr Construction Co. and Others Vs. The State of Bihar and Others, has observed that no royalty can be realised from the contractors unless they are found extracting, removing or transporting such minerals. Mere possession of such minerals or supply of same would not make them liable to pay royalty.

In my view, the rule making power of the State Government u/s 15(1) includes power to charge royalty. Section 15(3) also does not indicate absence of such power u/s 15(1). The provisions of Section 15(1) for regulating the grant of mining leases cannot confine to read in isolation. The nature of rule making power conferred upon the State Government by Section 15(1) must be in consonance with the object for which rules are framed. Therefore, the State Government has full competence to prescribe a suitable rule or procedure to give full effect of the purpose for which such provisions are made.

Therefore, to prevent evasion of royalty and check illegal mining, the State Government, prescribed Sub-rules (8) and (10) of Rule 40 of the Rules. As per these rules, a works contractor shall purchase minerals only from lessee, permit holder and authorised dealers. While submitting bills a contractor is also required to affirm affidavit which shall be sent to the District Mining Officer or Assistant Mining Officer for verification and to ascertain whether royalty was paid for such minerals. On verification if the statement made by the works contractor is found to be false, it would be presumed that such minerals were removed illegally, therefore, the Government may recover from such person rent, royalty or taxes as the case may be, or can take any other action as prescribed under those rules.

The Works contractors are not consumers of minerals. This Court in the case of Tata Engineering and Locomotive Company (supra) also had noticed such facts. They purchased minerals for sale and, therefore, to give full effect to the provisions of Sub-rule (10) of Rule 40, they can obtain royalty clearance certificate from the competent officer after producing a copy of chalan in Form ''F'', prescribed under Rule 33 of, the Rules. Thus it is apparent that status of a works contractor and that of a consumer of minerals are completely different.

To make it more specific that the, procedures as prescribed under sub-rules (8) and (10) are well within the competence of the State Government, it will also be useful to notice Sub-section (5) of Section 21 of the Central Act to show that whenever any person raises minerals without any lawful authority from any land, the State Government may recover from such person, mineral so raised or may also recover rent, royalty or tax, as the case may be. This is not the case of the State that in normal course also contractors are liable to pay royalty. But as per Sub-rule (10) of Rule 40 such contractors are required to satisfy the authorities that with respect to the minerals used by them in execution of contract work royalty was paid. Therefore, to prevent evasion of royalty the government has to adopt regulatory procedure to command the contractors to purchase minerals only from the lease or permit holder. But on verificaton, if it is found that such minerals were not purchased from the lessee or any other person authorised u/s 15 of the Act, it would be presumed that minerals were illegally extracted, removed or transported. Therefore, undisputedly, Sub-rule (8) or (10) of Rule 40 have been framed with a view to regulate mining leases and to check unauthorised evasion of royalty and illegal mining.

Therefore, after giving anxious consideration of the submissions made on behalf of the parties, as well as the relevant provisions of the Central Act and the Bihar Rules and different authorities noticed above, in my view, it is difficult to hold that the provisions of Sub-rule (8) or (10) of Rule 40 of the Rules are ultra vires to Section 15 or 21 of the Central Act. The State Governmnt is competent to ensure that royalty is paid for the minerals being used in execution of works.

The next question is whether the State Government has any authority to deduct the amount of royalty from the bills of the Petitioners who are admittedly not lessees or holders of any minor mineral or any other concession granted u/s 15 of the Central Act or rule framed by the State Government as also whether in absence of any evidence that they have removed or consumed such minerals in capacity of agent, manager, employee, contractor or sublessee of a holder of mining lease.

A stand has been taken since the Petitioners are not lessees of minor minerals, therefore, simply because they failed furnish clearnace certificate, no amount of royalty can be deducted from their bills. In support of such contention, reliance was placed to a decision of this Court in the case of P.B. Enterprises and Ors. v. State of Bihar and Ors. (1992 BBCJ 685).

On behalf of the State Government it has been stated that the Petitioner having voluntarily agreed and entered into agreement at the time of allotment of work as also after including amount of royalty in their bills, by realising from the State Government, cannot be allowed to raise such objection at this stage when the amount of royalty was deducted from their bills. A bare reference to condition Nos. 26 and 34 of agreement would show that these contractors had agreed to pay all the duties, tolls, quarry fees, royalty and other taxes on minerals or on any other articles they had used in execution of contract. That apart, even bills, submitted by the Petitioner would indicate that amount of royalty is included. Therefore, the contractors having derived full benefits under such agreements are certainly not entitled to question the decision of the State Government to deduct royalty from their bills.

There is no denial while entering into contract, the Petitioners had agreed to pay all the dues including rent, royalty in case they fail to satisfy that for such minerals royalty was already paid. But at this stage, a stand is being taken that such agreement would be contrary to the legislative provisions and, therefore, void u/s 23 of the Contract Act. Reliance was placed to a decision of the Supreme Court in the case of Central Inland Water Transport Corporation Limited and Another Vs. Brojo Nath Ganguly and Another, In my view, such submission has to be rejected for the simple reason that (a) these writ petitions were filled as back as in the year 1987-88 but no such pleading was ever made; (b) agreements were registered some time in the year 1985 and after execution of contract as per agreement bills were submitted much before filing of the writ petitions (sic) writ being a discretionary remedy, therefore, unless the Petitioners are able to establish their right to retain the amount of royalty, the Court will refuse to exercise its jurlsdiction under Article 226 of the Constitution and (d) if an order for refund is made, it would give a premium to an illegal and unauthorised act of the Petitioners.

Therefore, having regard to the facts noticed above, in our view, the ratio laid down in the case of Central Inland Water Transport Corporation Ltd and Anr. (Supra) is not at all applicable to the present one. No material has been placed before us to show that object of the contract in question was opposed to public policy or contrary to public policy or in any way violative of directive principles, contained in Article 39(a) and 41 of the Constitution.

23.Therefore, in a given circumstance, if the Petitioners or other contractors are allowed to retain such amount to which admittedly in law they are not entitled, would naturally result to them unjust enrichment in terms of the judgment of the Supreme Court in the Case M/s. Orissa Cement Ltd. and Others Vs. State of Orissa and others, This is not the case of the Petitioners that they are entitled to retain the amount of royalty which they had realised. Therefore, the steps taken by the authorities to deduct such amount from their bills, cannot be held to be illegal.

Yet in the case of State of Rajasthan and Others Vs. Novelty Stores, etc., also a similar view was taken by the Supreme Court. It was held that in a case where an order is passed for refund of amounts to unjust enrichment to the persons in whose favour withdrawal is ordered, would be illegal and unjust.

It would also be useful to notice a judgment of the Bombay High Court in the case of Roplas (India) Limited and Another Vs. Union of India and Another, Relevent findings from the report in paragraph 5 are as follows:

XXXX

We are of the view that since the Petitioners have already recovered from their customers the whole of the duty, they are not entitled to its refund. Their claim for such refund amounts to a fraud on consumers, and the society. And indulgence in their favour will amount to helping them to enrich themselves unjustly. They are not entitled to claim the refund even u/s 72 of the Contract Act. Much less can they therefore invite, this Court to exercise its extra ordinary, equitable and discretionary writ jurisdiction under Article 226 of the Constitution in their favour.

Therefore, in terms of the views expressed in the aforementioned cases, it will be really travesty of judicial process, if the Petitioners are allowed to retain the amount of royalty. The judicial process cannot lend its assistance for collection of illegal booty.

But having regard to the nature of dispute as also relevant statutory requirements, in my view, it would be open to the Petitioners or any other work contractors to produce clearance certificate or affidavit etc. as required under Sub-rule (10) of rule 40 to satisfy the appropriate authority or authorities that with respect to the minerals supplied or used in execution of work contract, royalty was already paid and, therefore they claim refund, if any.

For the reasons discussed above, in my opinion, until and unless the required formalities are fulfilled, no claim for refund, as made out by the Petitioners, can be allowed.

In the light of answer rendered to the question posed at the outset, no relief for refund of the amount can be granted subject to the liberty to the Petitioners to approach the authorities in the manner as indicated in paragraph 27 of this order. Accordirgly, these writ applications are dismissed but the parties are left to bear their own costs.

Amir Das, J.

I agree.