Quarries Turning Into Quandaries

India's mining industry, which was last valued at Rs. 2.8 lakh crore, utilizing a treasure trove of over 95 minerals, is the country’s second largest employment generator. It is therefore unsurprising that reforms in the mining sector are a priority in the government’s ‘Atmanirbhar Bharat Abhiyan’ package.

India’s federal structure vests the right to regulate mining in both the centre and the state [Ref: Entry No. 54 of List 1 r/w Entry No. 23 of List 2 in Seventh Schedule of Constitution of India, 1950], with the power of the state being subject to the control assumed by the centre. This has often resulted in stalemates in reforms due to the lack of consensus/coordination between the states and the centre.

The last big-ticket reforms were occasioned by the Hon’ble Supreme Court’s ruling in the case of M.L. Sharma v. Union of India [(2014) 9 SCC 516], wherein it was held that the constitutionally-preferable manner of parting with natural resources such as minerals is through auction. This served as a catalyst in comprehensively amending the Mines and Minerals (Development and Regulation) Act, 1957, providing for transparent auctioning of mineral concessions.

While doing so, the Letters of Intent (LoI) and equivalents thereof granted prior to the amendments were saved by virtue of Section 10A, which directed that a mining lease pursuant to such LoIs should be granted within two years of the amendments, i.e. by January 2017. Such grandfathering provision has since been recognized by the Supreme Court as a statutory inscription of an otherwise equitable principle of ‘legitimate expectation’ of allottees who had invested sizeable capital pursuant to the LoIs granted. In fact, Section 10A was recognized as a positive mandate to the State Governments to grant leases before the sunset period (i.e. January 2017). However, around 700 mines that were to be benefited by Section 10A are still mired in various stages of clearances, marred by litigation due to the non-grant of mining leases by State Governments. The Government of India vide its notice of August 2020 has proposed repeal of Section 10A, thereby freeing up these mines for auction. Reportedly, 500 such mines are proposed to be auctioned over the next two to three years.

Such proposals, whilst well-intentioned, may lead to further litigation and policy stalemate as they impinge on the ‘legitimate expectation’ of allottees, which has already been statutorily and judicially recognized. Further, it may infringe upon the allottees’ constitutional rights (i.e. under Articles 14, 19(1)(g) and 300A). The reforms, in their present form, do not address the issues of delay/lack of clearances and the lack of co-ordination between the Central and the State Governments, which would continue even if the proposed reforms are implemented.

While it is proposed that compensation for expenses of exploration would be granted, this may not be sufficient, given that allottees have planned their entire business ecosystems based on the sovereign guarantee in the form of Section 10A. This is truer in the case of captive mines, for e.g., in sectors such as steel, cement et al. In any case, it would be hard to quantify fair compensation in respect of sunk capital for associated infrastructure, delay, magnitude of the mine, time value for money, et al.

Reforms must aim to protect the rights of all stakeholders if they are to serve the intended purpose. The Central and State Governments need to work together to expeditiously implement the committed way forward. The Government could consider inserting provisions for ‘deemed grant’, fulfilling it where compliance certificates, toward conditions subsequent, have been duly furnished by the allottees. Such process may be subject to the allottee’s consent for proceeding with the grant of a lease when inordinate delay has already been borne; and cancellation of LoIs may be restricted to mines where delay is directly attributable to the allottees. Such concessions may then be auctioned with all requisite pre-embedded permits for carrying out operations.

The need of the hour to is forge a process that does not stymie mining while respecting the rights of all stakeholders. A pragmatic view needs to be taken that ensures that mines are not mired in litigation for years to come. To secure investor confidence in India’s mineral sector, the proposed reforms must be framed such that they do not turn the country’ abundant quarries into paralyzing quandaries.