State's Delay in Terminating Mining Lease Was Arbitrary, Rules Allahabad High Court; Quashes Recovery of Two Royalty Instalments

The Allahabad High Court held that the State's unexplained delay in invoking Rule 58 of the U.P. Minor Minerals Rules to cancel a sand-mining lease was arbitrary, relieving the lessee of two royalty instalments that accrued during that delay.

A Division Bench of the Allahabad High Court, comprising Justice Saral Srivastava and Justice Sudhanshu Chauhan, has partly allowed two writ petitions filed by Jai Shakti Realcon against the State of Uttar Pradesh. The judgment sets aside the recovery of royalty instalments that fell due on 1 July 2019 and 1 October 2019, on the ground that the District Magistrate, Fatehpur delayed, without explanation, invoking the lease-termination power under Rule 58(1) of the U.P. Minor Minerals (Concession) Rules, 1963 after the petitioner had already stopped mining in May 2019. The court left intact the order terminating the lease and declined to interfere with the show-cause and demand notices that were under challenge in the companion writ petition.

The Dispute Before the Court

Jai Shakti Realcon held a sand and moram mining lease over Khand No. K-4, Gata No. 391 Mi, measuring 40.48 hectares in Village Korrakanak, Tehsil and District Fatehpur. The lease deed was executed on 29 November 2018 and registered on 30 November 2018 for a five-year term running to 28 November 2023, at a royalty rate of Rs. 255 per cubic metre. Before execution, the firm deposited Rs. 3,87,09,000 as security and an identical amount as the first royalty instalment.

The petitioner did not deposit the second and third instalments of the first year, totalling Rs. 7,74,18,000, which were due on 1 January 2019 and 1 April 2019. This triggered a series of demand notices from the District Magistrate, Fatehpur, beginning with a notice dated 12 April 2019, followed by notices dated 24 April 2019 and 21 May 2019. A further notice dated 25 July 2019 demanded Rs. 14,10,300 towards alleged illegal mining and the outstanding royalty with interest. A final notice dated 9 December 2019 warned of lease termination, and on 1 January 2020 the District Magistrate passed an order determining the lease and blacklisting the firm for two years.

In Writ-C No. 18896 of 2019, the petitioner challenged the show-cause notices dated 24 April 2019 and 21 May 2019. In Writ-C No. 3056 of 2020, it challenged the termination order of 1 January 2020. Both petitions were heard together, with facts drawn principally from the later petition.

The Petitioner's Case: River Course, Royalty Liability, and Delayed Termination

The petitioner advanced three main contentions. First, it argued that Section 15(3) of the U.P. Mines and Minerals (Development and Regulation) Act, 1957, read with condition No. 1 of Part-II of the lease deed, limits royalty liability to the quantity of mineral actually excavated and removed. Since it had paid royalty on all mineral actually removed, no further recovery was permissible.

Second, the petitioner contended that a change in the course of the Yamuna river had submerged most of the allotted area and pushed a portion of it across the district boundary into Village Jauharpur, District Banda. It relied on the survey report of 6 March 2019 by the Regional Office, Prayagraj, whose geo-coordinates placed Points C and D of the lease area abutting the boundary of District Banda, and on the joint inspection report of 2 April 2019 which noted that a part of the lease area was across the river towards Tehsil and District Banda. The petitioner said that the Commissioner, Chitrakoot Dham, Banda had also stopped its approach road construction in the border area, and that persons from Jauharpur were interfering with mining operations.

Third, and the contention that ultimately succeeded in part, the petitioner argued that Rule 58(1) of the Rules, 1963 imposed no discretion on the District Magistrate to defer lease termination once the conditions for termination existed. By protracting the proceedings from May 2019 to January 2020, the State had allowed the firm's royalty liability to multiply for a period during which it was not mining at all.

The State's Defence

The State, represented by the Additional Advocate General Sri Kartikey Saran, filed a counter affidavit contending that the petitioner had been continuously mining and wilfully withholding instalments, causing loss of revenue and disrupting sand supply. It relied on the E-MM-11 portal data showing excavation of 22,448 cubic metres in December 2018, 11,059 in January 2019, 3,687 in February 2019, 936 in March 2019, 170 in April 2019, and 1,039 in May 2019, totalling 39,329 cubic metres.

On the boundary dispute, the State pointed to the demarcation report dated 13 May 2019, produced after a survey conducted from 8 to 10 May 2019 by a team constituted on the direction of the Director of Geology and Mining, Lucknow. That report, signed by revenue officers of both Fatehpur and Banda and mining officers of both districts, found no overlapping between the boundaries of Village Kurra Kanak and Village Jauharpur. The State also noted that the petitioner's letter dated 20 May 2019 did not dispute that demarcation report and did not assert that any part of the leased area lay in District Banda; it only complained of interference by private persons.

On the delay argument, the State said that the power to terminate the lease under Rule 58 was in addition to the power to recover arrears as land revenue, implying that these were independent remedies that could be pursued sequentially. It noted that the petitioner had deposited Rs. 50 lakhs on 17 October 2019, which had been adjusted against the fourth instalment due on 1 July 2019, and that a final notice was given on 10 December 2019 before termination.

How the Bench Reasoned

Section 15(3) and royalty on unexcavated mineral

The bench rejected the first contention by applying the court's own earlier judgment in M/s Sharad Enterprises v. State of U.P. and Others (Writ-C No. 14386 of 2019). That judgment, in turn, drew on a Division Bench ruling in Raj Pratap Yadav v. State of U.P. and Others (Writ-C No. 28087 of 2023), which had held that in an auction lease governed by a statutory form — Form MM-6 under Rule 29 of the Rules, 1963 — the highest bid and the annual instalment schedule form part of the contractual consideration. Section 15(3) cannot be read to relieve a lessee of instalment obligations merely because mineral was not removed.

The river-course claim rejected on facts

The bench found that the three successive survey reports, all conducted at the petitioner's own request, uniformly contradicted its case. The report of 6 March 2019 showed Points C and D abutting the Banda boundary but within the leased area. The report of 2 April 2019, though conducted without the Banda revenue team, marked boundary pillars on site in the petitioner's presence. The definitive report of 13 May 2019 was unambiguous: no overlapping existed between Village Kurra Kanak and Village Jauharpur, and all boundary pillars had been pointed out to the leaseholder. All parties present signed off as satisfied.

The bench also noted that the petitioner's own letter of 20 May 2019 did not challenge the 13 May 2019 demarcation or claim that part of the area lay in Banda; it only sought assistance against private interference. Portal data showed that the petitioner had excavated substantial quantities through May 2019. In the court's view, the successive applications for survey were a peshbandi — a pre-arrangement — designed to construct an excuse for non-payment, not a genuine grievance about the mining area.

Delay in invoking Rule 58 — the arbitrariness analysis

The bench's most substantive reasoning concerned the third contention. Rule 58(1) of the Rules, 1963 provides that the State Government or any authorised officer may determine the mining lease after serving notice on the lessee to pay within thirty days any amount due, if it was not paid within fifteen days of the due date. Rule 58(2) additionally permits simple interest at 18 per cent per annum after the notice period expires.

The bench observed a structural asymmetry in the scheme: neither the Rules, 1963 nor the lease deed in Form MM-6 gives a lessee any right to exit the lease. The lessee cannot surrender unilaterally. The State alone can terminate. This asymmetry means that every day the State delays termination, the lessee's royalty liability continues to accrue — with interest at 18 per cent — for a period during which the lessee may not be mining at all and has no legal remedy to stop the clock.

Drawing on the Supreme Court's formulations of arbitrariness in Kumari Shrilekha Vidyarthi v. State of U.P., (1991) 1 SCC 212, Verigamto Naveen v. Govt. of A.P., (2001) 8 SCC 344, and M.P. Power Management Company Limited v. SKY Power Southeast Solar India Private Limited, (2023) 2 SCC 703, the bench held that delay by a public authority in exercising a statutory power, without disclosing any bonafide reason, and in circumstances where that delay causes measurable financial injury to the individual, can itself attract the vice of arbitrariness under Article 14 of the Constitution.

The bench stated that where a statute prescribes the manner and time frame for exercise of power, and there is no legal impediment to acting within that frame, delay without disclosed reason becomes suspect. If the delay is shown to be malicious, it constitutes an abuse of power. Even absent proof of malice, unexplained delay that causes significant injury to the lessee is inconsistent with the State's obligation to act in a reasoned and fair manner.

Applying this to the facts, the bench found that the petitioner's last recorded mining was in May 2019. The two unpaid instalments due on 1 January 2019 and 1 April 2019 were known to the District Magistrate at least by the time the notice dated 21 May 2019 was issued. The State's counter affidavit offered no explanation for not invoking Rule 58 immediately after the notice period under the 21 May 2019 notice expired. The State's only response was that the termination power was “in addition to” the recovery power, which the bench found to be a general averment that did not justify inaction.

The bench concluded that had Rule 58(1) been invoked promptly after May 2019, the lease would have been determined before 1 July 2019. The petitioner would not have incurred liability for the instalments due on 1 July 2019 and 1 October 2019. Recovery of those two instalments was therefore not justified.

The Rs. 70 Lakh Deposit and the Blacklisting

The petitioner had deposited Rs. 50 lakhs on 15 October 2019 and Rs. 20 lakhs on 26 November 2019, totalling Rs. 70 lakhs. The State had adjusted this amount against the October 2019 instalment. Since the bench held that the July and October 2019 instalments were not recoverable, it directed that the Rs. 70 lakhs be adjusted instead against the instalments due on 1 January 2019 and 1 April 2019, which remained payable.

On the termination order itself, the bench declined to interfere. It found no ground to quash the lease determination, since the petitioner's own argument on delay was premised on the authorities being obliged to terminate sooner — not on any defect in the eventual termination.

Regarding the two-year blacklisting of the firm, the bench noted that the period had already elapsed. It directed that the blacklisting recorded in the impugned order should not be held against the petitioner in any future auction proceedings in which it is otherwise eligible to participate.

Outcome

Writ-C No. 3056 of 2020 was partly allowed. The impugned order dated 1 January 2020 was set aside to the extent it demanded recovery of the royalty instalments due on 1 July 2019 and 1 October 2019. The Rs. 70 lakhs deposited by the petitioner was directed to be adjusted towards the instalments due on 1 January 2019 and 1 April 2019. The termination of the lease deed was upheld. The direction blacklisting the firm for two years was declared to be of no further effect in future auction proceedings. Writ-C No. 18896 of 2019, challenging the show-cause and demand notices of April and May 2019, was dismissed. No order as to costs was made in either petition. The judgment was delivered on 8 May 2026 by Justice Saral Srivastava, speaking for the bench.