Supreme Court upholds Haryana’s royalty hike despite silent mining lease deed

A bench of Justices Dipankar Datta and Satish Chandra Sharma held that statutory power to revise royalty is an implied condition of a mining lease, reversing the High Court.

The Supreme Court has held that a State can enhance royalty and dead rent on a mining lease even where the lease deed itself contains no clause permitting such an increase. In a judgment delivered on 13 July 2026, a bench of Justice Dipankar Datta and Justice Satish Chandra Sharma allowed appeals by the State of Haryana and set aside a judgment of the High Court of Punjab and Haryana that had quashed a 2005 notification revising the rates.

The Court reasoned that a mining lease granted under statutory rules is a statutory grant, not a closed private contract, so the power to revise royalty under the MMDR Act and the 1964 Rules survives as an implied condition. The dispute involved two lessees, M/s Faridabad Gurgaon Minerals and M/s Ganpati Enterprises Slate Mines, whose leases had been executed on 17 September 2002.

How the dispute reached the Court

The leases arose from an auction notice dated 12 October 2001 issued by Haryana’s Mines & Geology Department for extraction of road metal and masonry stone in Faridabad district. M/s Faridabad Gurgaon Minerals was the highest bidder, and two letters of acceptance dated 6 November 2001 followed.

Both the auction notice and the letter of acceptance stated that Rules 10, 21 and 61 of the Punjab Minor Mineral Concession Rules, 1964 would apply, and that annual dead rent would be enhanced by 50% after every three years. The lease deed executed on 17 September 2002, however, did not repeat the stipulation that the 1964 Rules applied, nor did it provide for fluctuating rates of royalty.

By notification dated 3 June 2005, the State amended the 1964 Rules under Section 15(1) of the MMDR Act and enhanced royalty and dead rent by 50%. The lessees challenged the notification before the High Court, arguing that their rights were confined to the terms of the lease deed and that any later enhancement could not bind them. They also contended the increase lacked empirical basis.

The three writ petitions were heard together and allowed by a common judgment dated 2 June 2016. The High Court held that the lease deeds did not provide for a change in rate, that the 50% enhancement was arbitrary and unsupported by material, and that the Rules of Business framed under Article 166 had been violated. Review petitions filed by the State were dismissed in March and May 2017, on merit and on delay.

Royalty revision as an implied condition

On the first issue, the Court addressed whether a statutory contract forecloses the Government from exercising a statutory power that is available but not expressly mentioned in the contract. The general answer, it held, is no. A contract cannot foreclose the Government from exercising a statutory power, subject to an exception where the statute itself allows contracting out.

The Court distinguished the two capacities in which Government contracts. When it acts as a sovereign exercising a statutory, regulatory power for public good, it cannot surrender or abdicate that power by contract. When it acts as a private party in purely commercial dealings, the contract may be a complete code.

Applying this, the bench found that a mining lease is a statutory grant and royalty a statutory levy. It read a conjoint effect of Section 15(3), Rule 10(2), Rule 21(1)(i)(a) and Rule 21(1)(iii). Section 15(3) requires payment “at the rate prescribed for the time being”, and the proviso to Rule 21(1)(i)(a) reserves to the State the power to revise royalty at rates notified from time to time. The Court held enhancement to be an implied condition of every lease under the Rules, so a lessee has no vested right to static royalty.

The Court also relied on the prior auction notice and letter of acceptance, both of which expressly contemplated Rules 10 and 21, to hold that compliance with those rules formed an implied condition of the lease deed. It observed that minerals are held by the State in trust for the people, and reading the lease to disable revision would leave resources exploited at rates “no longer appropriate, fair or commensurate with their value”.

The bench distinguished Indian Aluminium Co. v. Kerala State Electricity Board, relied on by the lessees, noting that principle applies only where an express stipulation restricts future exercise of statutory power, whereas the lease here merely fixed a rate without foreclosing enhancement. It drew support from State of Rajasthan v. J.K. Synthetics, where a contractual rate was held to yield to an amended statutory rule.

The arbitrariness challenge

On the second issue, the Court rejected the claim that the notification suffered from arbitrariness or non-application of mind. The State had called for and considered rates prevailing in neighbouring States before revising, which ruled out any allegation of mechanical treatment. The failure to constitute a proposed sub-committee did not by itself vitiate the decision.

The Court said it is not required for the State to demonstrate with mathematical precision the basis for fixing the increase at 50%, and that judicial review does not extend to the wisdom of the rate. The test is Wednesbury unreasonableness. The earlier revision had taken place in September 1999 and the impugned revision only in June 2005, after about five and a half years. There is no maximum cap on royalty, and an enhancement of 50% after that gap could not be called excessive.

The Rules of Business question

On the third issue, the Court first noted a flaw in the writ petitions: the amended pleadings contained no averment that the Rules of Business were violated, the plea having surfaced only in an application to rely on additional documents. Since the State had filed a reply to that application, it was not taken by surprise, and the Court chose to examine the issue on its importance.

The bench read MRF Limited v. Manohar Parrikar, which held Business Rules under Article 166(3) to be mandatory. It found the facts distinguishable. In MRF Limited an individual minister acted without informing the Council or the Chief Minister. Here, the decision was taken by the Minister-in-charge of Mining, who was the Chief Minister himself, so the requirement of the Chief Minister’s approval was satisfied.

Reading Articles 154 and 163, the Court held that financial decisions form part of the collective responsibility of the Council and require the knowledge and approval of the Chief Minister. Any decision on finances without the Chief Minister at the helm is not to be construed as a decision of the Government.

On the requirement of the Finance Department’s consent under Entry 11 of Schedule I, the Court found no adequate pleadings and noted that the referenced additional affidavit was not on record. There was nothing to show the Finance Minister had any reservation, and under Rule 34 the Finance Minister could have called for the relevant papers. In these circumstances, the Court held there was deemed consent of the Finance Minister to the increase.

Order

The Court allowed the appeals and set aside the impugned judgment. Pending applications were disposed of, and parties were directed to bear their own costs.

On relief for the respondents, the Court held that unpaid dead rent or royalty, if any, may be realised by the State according to law. Considering that the notification remained stayed for a substantial period, that the lease expired on 5 February 2009, and that the State’s later regime provides a lower interest rate, the Court declined to waive interest but limited interest on arrears of dead rent or royalty to 12% per annum.