The Director of Mines and Geologyv.BMM ISPAT Ltd and Another

Legal Analysis: The Director of Mines and Geology v. BMM Ispat Ltd and Another

Citation: 2026 INSC 627

Court: Supreme Court of India

Bench: A Division Bench comprising Justice Sanjay Karol & Justice Nongmeikapam Kotiswar Singh

Date of Decision: June 4, 2026

Nature of Judgment: Civil Appeal arising out of SLP (Civil) No. 16259 of 2019 against the judgment of the High Court of Karnataka at Bengaluru dated 18th March 2019 in Writ Petition No. 6979 of 2017.

Synopsis of the Judgment

The appellant (Director of Mines and Geology, Karnataka) challenged the High Court’s order which allowed the respondent’s writ petition against the deduction of additional 5% royalty from its security deposit. The respondent had participated in an e-auction for sale of iron ore stockpile pursuant to this Court’s orders in WP (C) No. 562 of 2009. The acceptance letter was issued on 28.06.2014, and the bid was accepted at 10% royalty. The Central Government, by notification dated 01.09.2014, increased the royalty rate for iron ore from 10% to 15% with effect from that date. The respondent had paid the entire consideration including royalty at 10% but removed the iron ore in batches, some of which was after 01.09.2014. The appellant deducted the differential royalty (5%) from the security deposit. The High Court held that the royalty crystallised on the date of acceptance of the bid and that the enhancement could not be imposed. The Supreme Court allowed the appeal, holding that: (i) royalty under Section 9 of the MMDR Act, 1957 is payable on the removal or consumption of minerals from the leased area; (ii) the contractual provision (including the contingency amount of Rs.50/100 per tonne) cannot override a statutory amendment; (iii) the date of movement/dispatch of minerals is the relevant date for determining the applicable royalty rate; (iv) since the respondent removed the iron ore after the amendment came into force, it was liable to pay royalty at the enhanced rate of 15%.

1. Basic Information of the Judgment

Case Title: The Director of Mines and Geology v. BMM Ispat Ltd and Another

Citation: 2026 INSC 627

Civil Appeal No.: Arising out of SLP (Civil) No. 16259 of 2019

Bench: Justice Sanjay Karol & Justice Nongmeikapam Kotiswar Singh

Date of Decision: June 4, 2026

Court: Supreme Court of India (Civil Appellate Jurisdiction)

Impugned Order: Judgment and order dated 18th March 2019 of the High Court of Karnataka at Bengaluru in Writ Petition No. 6979 of 2017.

2. Legal Framework

Major Laws and Provisions Involved

• Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) – Section 9 (royalties in respect of mining leases – payable on removal or consumption of minerals from leased area at rates specified in Second Schedule; Central Government may amend Schedule to enhance or reduce rates, but not more than once every three years).

• Transfer of Property Act, 1882 – Section 105 (definition of lease – transfer of right to enjoy immovable property for consideration).

• Easements Act, 1882 – Section 52 (definition of licence).

• General Clauses Act, 1897 – Section 3(26) (definition of immovable property includes benefits arising out of land).

• Constitution of India, 1950 – Article 141 (law declared by Supreme Court binding on all courts).

Key Precedents Cited and Applied

• Mineral Area Development Authority v. M/s Steel Authority of India (2024) SCC OnLine SC 1552 (Nine-Judge Bench) – Essential characteristics of royalty; royalty is payable on dispatch/removal of minerals from leased area; payment is linked to dispatch.

• Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey & Co. (1979) 3 SCC 106 – Mining operations include every activity by which mineral is extracted or obtained from the earth.

• State of Karnataka v. Subhash Rukmayya Guttered (1993 Supp (3) SCC 290) – Right to carry out mining operations under a mining lease is a right to enjoy immovable property under Section 105 of the Transfer of Property Act.

3. Relevant Facts

Pursuant to this Court’s order dated 23rd September 2011 in WP (C) No. 562 of 2009, a Monitoring Committee was constituted to ensure sale of existing stock of iron ore (approx. 25 million MT) in Bellary, Chitradurga and Tumkur districts. The e-auction terms provided that the successful bidder would pay royalty at 10% of the market price (as applicable under the Second Schedule) along with other taxes.

The respondent (M/s BMM Ispat Ltd) participated in e-auction No. 41 (2014-15) and was declared the successful bidder for several lots on 27th June 2014. An acceptance letter/sale order was issued on 28th June 2014. The invoice showed royalty at 10% and also included a contingency amount of Rs.50 per tonne (later Rs.100 per tonne in the tender) “to meet variance in royalty or other taxes which may arise in future”.

The Central Government, by notification dated 1st September 2014, amended the Second Schedule to the MMDR Act, increasing the royalty rate for iron ore from 10% to 15% with effect from that date.

The respondent made full payment (including royalty at 10%) and removed the iron ore in batches. Some removal took place after 1st September 2014. Upon completion, the respondent sought return of its security deposit. The Accountant General raised an objection that royalty should be charged at 15% for the quantity removed after the amendment. The Monitoring Committee deducted the differential 5% royalty (amounting to Rs.2,09,26,077 including VAT) from the security deposit and refunded the balance.

The respondent challenged the deduction before the High Court. The High Court allowed the writ petition, holding that the royalty crystallised on the date of acceptance of the bid (28.06.2014) and that imposing the enhanced rate would be unjust. The Director of Mines and Geology appealed to the Supreme Court.

4. Issues

Issue No. 1: Whether the royalty payable under Section 9 of the MMDR Act, 1957 crystallises on the date of acceptance of the bid/issuance of sale order, or on the date of actual removal/dispatch of minerals from the leased area.

Issue No. 2: Whether a contractual provision (including a contingency amount to meet future variance in royalty) can override a statutory amendment enhancing the rate of royalty.

Issue No. 3: Whether the High Court was correct in holding that the respondent was not liable to pay the enhanced royalty rate of 15% for the iron ore removed after 1st September 2014.

5. Ratio Decidendi

A. Section 9 of the MMDR Act links royalty to removal or consumption of minerals, not to the date of contract or bid acceptance (Paras 6-8, 12).

The Court examined Section 9 of the MMDR Act. Sub-section (1) provides that the holder of a mining lease shall pay royalty “in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area”. Sub-section (3) empowers the Central Government to amend the Second Schedule to enhance or reduce royalty rates. The Court held that royalty becomes payable when the mineral is removed or consumed, not when the contract is entered into or the bid is accepted. Relying on the nine-Judge Bench decision in Mineral Area Development Authority, the Court noted that royalty is payable on dispatch (removal) of minerals from the leased area.

B. The date of movement/dispatch is the relevant date for determining the applicable royalty rate (Para 12).

The Court quoted the majority opinion in Mineral Area Development Authority: “royalty is payable under Section 9 on the removal or consumption of minerals by the lessee in the leased area. Thus, essentially royalty is payable on the dispatch of minerals from the leased area.” Therefore, if the removal or dispatch occurs after a statutory amendment enhancing the royalty rate, the enhanced rate applies.

C. A contractual provision cannot override a statutory amendment (Paras 11, 13).

The acceptance letter and the tender document contained a clause requiring the successful bidder to deposit an additional amount of Rs.50 or Rs.100 per tonne “to meet variance in royalty or other taxes which may arise in future”. However, the Court held that a contractual provision must give way to a statutory amendment. The Central Government’s notification dated 01.09.2014 enhancing royalty from 10% to 15% had the force of law. The respondent could not rely on the contract to avoid paying the enhanced statutory rate.

D. The respondent had the option to remove the iron ore before the amendment; it chose not to (Para 13).

The Court observed that it was entirely open to the respondent to remove the iron ore from the site at one go or at any date prior to the amendment. The respondent either adopted a piecemeal approach or moved the entire quantity after the date of the amendment. Having chosen to do so, it cannot escape payment of the enhanced royalty.

E. The High Court’s judgment was set aside; the deduction was held valid (Paras 13-14).

The Court held that the appellant was correct in deducting the additional 5% royalty from the security deposit. The impugned judgment of the High Court was quashed and set aside. The appeal was allowed.

6. New Legal Principles Established / Reiterated

• Under Section 9 of the MMDR Act, 1957, royalty is payable on the removal or dispatch of minerals from the leased area, not on the date of the contract or acceptance of the bid. The statutory rate applicable on the date of removal/dispatch governs.

• A contractual provision (including a contingency amount to meet future variance in royalty) cannot override a statutory amendment enhancing the rate of royalty. Statutory liability prevails over contractual terms.

• The Central Government’s power under Section 9(3) of the MMDR Act to enhance royalty rates (not more than once every three years) is a statutory function that cannot be frozen by private agreements or equitable considerations.

• The phrase “for the time being specified” in Section 9(1) and (2) of the MMDR Act means the rate prevailing at the time of removal/dispatch, not at the time of entering into the contract.

7. Court’s Examination and Analysis

The Court first set out the factual background: this Court’s order constituting the Monitoring Committee, the e-auction, the acceptance letter, the payment, the amendment notification dated 01.09.2014 increasing royalty from 10% to 15%, and the subsequent deduction from the security deposit.

The Court then examined the relevant provisions of the MMDR Act. It noted that Section 9(1) and (2) explicitly link royalty to removal or consumption of minerals. The Central Government’s power to amend the Second Schedule under Section 9(3) is a continuing statutory power that cannot be contracted away.

The Court rejected the respondent’s argument that the royalty “crystallised” on the date of acceptance of the bid (28.06.2014). It held that the concept of crystallisation is not applicable to statutory royalty under the MMDR Act, which is event-based (removal/dispatch). The acceptance letter itself contained a contingency amount, acknowledging that future changes in royalty or taxes could affect the final liability.

The Court relied heavily on the nine-Judge Bench decision in Mineral Area Development Authority, where the Chief Justice held that royalty is payable on dispatch/removal of minerals. Since the respondent removed the iron ore after 01.09.2014 (the date on which the amendment came into force), it was liable to pay royalty at 15%.

The Court also noted that the respondent could have removed the entire quantity before the amendment but chose not to. The risk of a statutory change in law during the period of performance falls on the party who delays performance.

The Court set aside the High Court’s judgment and allowed the appeal.

8. Critical Analysis

Strengths: The judgment is a clear and correct application of the statutory scheme of the MMDR Act. It correctly holds that statutory royalty is event-based (on removal/dispatch) and cannot be frozen by private contracts. The reliance on the nine-Judge Bench decision in Mineral Area Development Authority is impeccable. The Court also rightly notes that the respondent had the option to remove the ore before the amendment and cannot complain about the increased rate after choosing to delay removal. The judgment protects the State’s revenue interest and upholds the supremacy of statutory law over contractual arrangements.

Potential concerns: The judgment does not explicitly address whether the contingency amount of Rs.50 per tonne (collected to meet variance in royalty) was sufficient to cover the additional 5% royalty. The respondent had already paid that contingency amount. However, the Court held that the statutory liability overrides the contractual arrangement, implying that the contingency amount was merely an estimate and could not limit the statutory liability. This is legally correct. Another concern is that the judgment does not discuss whether the respondent could claim a refund of the contingency amount if it was not used; but that was not the issue before the Court.

Practical impact: This judgment will be cited in all cases where a mining lessee or purchaser of minerals argues that royalty should be calculated at the rate prevailing on the date of contract rather than the date of removal/dispatch. It clarifies that royalty is a statutory levy payable on removal, and any delay in removal after a statutory amendment will result in liability at the enhanced rate. It also warns parties that contractual provisions cannot override statutory amendments.

9. Final Outcome

The Civil Appeal was allowed.

• The impugned judgment of the High Court of Karnataka dated 18th March 2019 in Writ Petition No. 6979 of 2017 was quashed and set aside.

• It was held that the respondent was liable to pay royalty at the enhanced rate of 15% (instead of 10%) for the iron ore removed/dispatched after 1st September 2014, the date on which the Central Government notification amending the Second Schedule to the MMDR Act came into force.

• The deduction of the differential 5% royalty from the security deposit by the appellant was held to be valid and correct.

• The appeal was allowed accordingly.

• Pending applications stood disposed of.

10. Practical Application

For mining lessees and purchasers of minerals in e-auctions: Before bidding, be aware that royalty under the MMDR Act is payable on the removal/dispatch of minerals, not on the date of bid acceptance or contract. If there is a delay between the date of contract and the date of removal, and the Central Government enhances the royalty rate in the interim, you will be liable to pay the enhanced rate. To avoid this, remove the minerals as soon as possible after the contract. If you are unable to remove promptly, factor in the risk of a statutory rate increase into your bidding price.

For the State Government and monitoring committees: When conducting e-auctions for mineral stockpiles, include clear terms in the tender document specifying that royalty is payable at the rate prevailing on the date of actual removal/dispatch, and that any statutory change in royalty rates during the contract period will be passed on to the purchaser. This will avoid disputes. Also, ensure that the contingency amount collected (if any) is clearly described as an advance towards potential future increases, not as a cap on liability.

For lawyers advising mining companies: When drafting contracts for mineral purchase, do not include clauses that purport to freeze royalty rates at a certain percentage. Such clauses will be struck down as being in conflict with the MMDR Act. Instead, include a clause stating that all statutory levies (including royalty) shall be paid as per the rates applicable on the date of removal/dispatch, and that any increase in rates shall be borne by the purchaser. If your client is the purchaser and has already paid at a lower rate, advise immediate payment of the differential to avoid interest and penalties.

For courts deciding similar disputes: Apply the principle that statutory royalty under Section 9 of the MMDR Act is payable on removal/dispatch, not on the date of contract. The “for the time being specified” language in Section 9(1) and (2) refers to the time of removal, not the time of contract. If the Central Government enhances rates during the pendency of the contract, the enhanced rate applies to minerals removed after the effective date of the notification. Do not accept arguments about “crystallisation” of royalty on the date of contract.

For the Central Government (Ministry of Mines): When issuing notifications under Section 9(3) enhancing royalty rates, specify the effective date clearly. The notification will apply to all minerals removed/dispatched on or after that date, regardless of when the contract was entered into. Ensure that the notification is widely published and that State Governments are directed to inform all stakeholders.

11.  Court Lines

Line 1 (Royalty payable on removal – Para 12, quoting Mineral Area Development Authority):
“It is worth noting that royalty is payable under Section 9 on the removal or consumption of minerals by the lessee in the leased area. Thus, essentially royalty is payable on the dispatch of minerals from the leased area.”

Line 2 (Statutory amendment overrides contract – Para 11):
“This, in our view, appears to be the correct approach for a contractual provision would have to give way to a statutory amendment. Had the increase been by way of any other method other than a statutory amendment, the position perhaps may have been different.”

Line 3 (Respondent’s delay – Para 13):
“It would have been entirely open to the respondents to remove the iron ore from the site at one go or at any date prior to the amendment, which they chose not to do. It is they who either adopted the piecemeal approach in moving the mineral or moved the entire quantity after the date of the amendment. As such, they cannot escape payment of enhanced royalty.”

Line 4 (Negation of non-applicability argument – Para 10):
“In view of the above, at the outset the respondent's contention of non-applicability of Section 9 of the Act has to be negated. This is more so for the reason that the respondent herein has chosen not to challenge the determination of the Division Bench in the impugned judgment that Section 9 would apply to them.”

Line 5 (Final conclusion – Para 13):
“If the date of the movement is after the enhancement in royalty, a contract entered into prior to the statutory change cannot be limiting its impact. In other words, the appellant was correct in deducting the additional 5% royalty from the security deposit of the respondent.”

Line 6 (Allowance of appeal – Para 14):
“Resultantly, the appeal is allowed. Impugned judgment, the particulars of which are mentioned in paragraph 1 is quashed and set aside.”

12. Legal Strategy Insight

For a mineral purchaser (like BMM Ispat) in a similar situation: Before challenging a deduction for enhanced royalty, examine the date of actual removal/dispatch of the minerals. If removal occurred after a statutory amendment, the likelihood of success is low. The better strategy is to expedite removal. If delay is unavoidable, consider seeking a specific representation from the State Government that the royalty rate will be protected, but note that such a representation cannot override a statutory amendment. Also, keep in mind that the contingency amount collected (Rs.50/100 per tonne) is not a cap on liability; it is merely an advance towards potential variance.

For a State Government or monitoring committee: When issuing acceptance letters or sale orders, explicitly state that royalty and other taxes shall be payable at the rates applicable on the date of actual removal/dispatch. Also, include a clause that any statutory change in rates during the contract period shall be binding on the purchaser. Collect a contingency amount (e.g., Rs.100 per tonne) to cover potential increases, but do not represent it as a ceiling. If the purchaser delays removal, deduct the differential from the security deposit or demand additional payment.

For a lawyer drafting a tender document for mineral e-auction: Insert a specific clause: “The royalty payable under the MMDR Act, 1957 shall be at the rate specified in the Second Schedule on the date of actual removal/dispatch of the minerals from the leased area. Any enhancement or reduction in the rate of royalty by the Central Government under Section 9(3) of the MMDR Act after the date of acceptance of the bid but before the date of actual removal/dispatch shall automatically apply to the quantity removed after the effective date of such notification.” This clause will put the bidders on notice and prevent disputes.

For a court interpreting Section 9 of the MMDR Act: Follow the principle that the phrase “for the time being specified” refers to the time of removal/dispatch, not the time of contract. The date of contract or bid acceptance is irrelevant for determining the applicable royalty rate. The only relevant date is the date on which the mineral is physically removed from the leased area (or consumed). This interpretation is consistent with the nine-Judge Bench decision in Mineral Area Development Authority.

For a mining lessee who has an existing long-term contract: If the Central Government enhances royalty rates during the term of your lease, you are bound to pay the enhanced rate. You cannot rely on the original lease document to claim a lower rate unless the lease document was executed after the MMDR Act and specifically provides for a fixed rate (but note that Section 9(1) overrides any inconsistent terms in the instrument of lease). The only exception is if the lease was granted before the commencement of the MMDR Act and the terms are protected by some specific provision (which is rare). In most cases, the statutory rate prevails.