1996 JTR(SC) 1412
1996 9 JT 303 ; 1996 7 Scale 342 ; 1996 10 SCC 665 ; 1996 Supp5 SCR 692 ; 1996 KHC 1698 ; 1996 7 Supreme 291
1996(7) Supreme 291
SUPREME COURT OF INDIA
K. Ramaswamy and G.B. Pattanaik, JJ.
M/s. Victorian Granites (P) Ltd. -Appellant
versus
P. Rama Rao & Ors. -Respondents
Civil Appeal No. 12368 of 1996
(Arising out of SLP (C) No. 8859 of 1996)
Decided on 9-9-1996
Counsel for the Parties :
For the Appellant : K. Parasaran, Sr. Advocate and K. Swami Advocate.
For the Respondents : K.R. Chowdhary, Advocate.
Act
Referred
:ANDHRA PRADESH MINES AND MINERAL CONCESSION RULES : .
CONSTITUTION OF INDIA : Art.21, Art.39(b)
(A) The relevant statutory framework under the Constitution of India, read with the Andhra Pradesh Mines and Mineral Concession Rules, governs the validity of the transfer of leasehold mining rights. Article 21 and Article 39(b) of the Constitution, together with the Rules, establish that the State must secure that control of material resources is distributed to subserve the common good and socio-economic justice, preventing the depletion of State assets for private benefit. The provisions of Rule 31, read with Appendix clauses, mandate that any assignment or transfer of leasehold interests within two years of the grant requires prior permission of the competent authority, here the Deputy Director. The exercise of suo motu power by the Government to set aside the assignment is scrutinized against this constitutional and statutory framework.
(B) Key legal principles include that transfers of mining leasehold rights must comply with mandatory waiting periods and prior authorization requirements to prevent circumvention of constitutional objectives. Facade of compliance, such as keeping royalty payments in the name of the original lessee, will not shield transactions that defeat the common good, encourage corruption, or create monopolistic control over public resources. The court must look past the legal form to the economic reality and purpose of the transaction.
Facts of the case:
P. Rama Rao obtained a ten-year quarrying lease on October 7, 1989, executed a lease deed on October 8, 1990, and transferred the leasehold rights to Magam Inc. on October 8, 1992, exactly two years after the grant. The transfer purported to comply with Rule 31 and Appendix clauses requiring permission after two years, and the Deputy Director authorized the transfer on the day it was applied for. The transaction was challenged as being a subterfuge to circumvent constitutional objectives.
Findings of Court:
The court found that the transfer was a facade of compliance, aimed at securing unjustifiable enrichment and defeating the constitutional objective under Article 39(b). The court expressed doubts regarding the genuineness of the partnership in the transferee company and held that the transaction smacked of bonafides only. The Government was held to have correctly set aside the assignment and sub-lease, restructuring rules to prevent such practices in the future.
Issues:
Whether the transfer of leasehold rights within two years of the grant, with purported compliance, was valid in law; whether the Deputy Director acted within his powers; and whether the transaction defeated constitutional objectives under Article 39(b).
Ratio Decidendi:
A transfer of mining leasehold rights that seeks to evade the mandatory two-year period and prior permission requirement, even on the surface, is invalid if it undermines the constitutional goal of distributing resources for the common good. The court must pierce through apparent compliance to assess the true economic effect and prevent transactions that facilitate corruption, nepotism, and depletion of State assets.
Result:
The appeal is allowed. The High Court order is set aside, and the Governments order confirming the setaside of the leasehold transfer is confirmed without costs.
(A) The relevant statutory framework under the Constitution of India, read with the Andhra Pradesh Mines and Mineral Concession Rules, governs the validity of the transfer of leasehold mining rights. Article 21 and Article 39(b) of the Constitution, together with the Rules, establish that the State must secure that control of material resources is distributed to subserve the common good and socio-economic justice, preventing the depletion of State assets for private benefit. The provisions of Rule 31, read with Appendix clauses, mandate that any assignment or transfer of leasehold interests within two years of the grant requires prior permission of the competent authority, here the Deputy Director. The exercise of suo motu power by the Government to set aside the assignment is scrutinized against this constitutional and statutory framework.
(B) Key legal principles include that transfers of mining leasehold rights must comply with mandatory waiting periods and prior authorization requirements to prevent circumvention of constitutional objectives. Facade of compliance, such as keeping royalty payments in the name of the original lessee, will not shield transactions that defeat the common good, encourage corruption, or create monopolistic control over public resources. The court must look past the legal form to the economic reality and purpose of the transaction.
Facts of the case:
P. Rama Rao obtained a ten-year quarrying lease on October 7, 1989, executed a lease deed on October 8, 1990, and transferred the leasehold rights to Magam Inc. on October 8, 1992, exactly two years after the grant. The transfer purported to comply with Rule 31 and Appendix clauses requiring permission after two years, and the Deputy Director authorized the transfer on the day it was applied for. The transaction was challenged as being a subterfuge to circumvent constitutional objectives.
Findings of Court:
The court found that the transfer was a facade of compliance, aimed at securing unjustifiable enrichment and defeating the constitutional objective under Article 39(b). The court expressed doubts regarding the genuineness of the partnership in the transferee company and held that the transaction smacked of bonafides only. The Government was held to have correctly set aside the assignment and sub-lease, restructuring rules to prevent such practices in the future.
Issues:
Whether the transfer of leasehold rights within two years of the grant, with purported compliance, was valid in law; whether the Deputy Director acted within his powers; and whether the transaction defeated constitutional objectives under Article 39(b).
Ratio Decidendi:
A transfer of mining leasehold rights that seeks to evade the mandatory two-year period and prior permission requirement, even on the surface, is invalid if it undermines the constitutional goal of distributing resources for the common good. The court must pierce through apparent compliance to assess the true economic effect and prevent transactions that facilitate corruption, nepotism, and depletion of State assets.
Result:
The appeal is allowed. The High Court order is set aside, and the Governments order confirming the setaside of the leasehold transfer is confirmed without costs.
ORDER
Leave granted.
2. This appeal by special leave arises from the judgment and order of the Division Bench of the Andhra Pradesh High Court made on December 14, 1995 in W.P. 6592/94. The appellant had filed a revision under Section 35-A of the A.P. Mines & Mineral Concession Rules, 1966 (for short, the "Rules"). The Government after issuance of notice, set aside the transfer of the leasehold rights had by the first respondent, P. Rama Rao, who was the original lessee, to M/s. Magam Inc. in respect of the leasehold interests in the four leases granted in various G.Os. for about 103 acres which facts are not in dispute. When the matter came up for hearing, this Court issued notice as to how and under what circumstances P. Rama Rao came to transfer these leasehold interests to the second respondent, and whether they are sustainable in law ? The respondents have filed their counter-affidavits. We have heard the learned counsel on both sides.
3. It is not in dispute that P. Rama Rao had applied for and obtained leases on various dates for quarrying granite in R.L. Puram in Chimokurthy Mandalam of Prakasam District for a period of ten years on October 7, 1989. Subsequently, on October 8, 1990, he had executed the lease deed. He transferred the leases in favour of Magam Inc. on October 8, 1992. The question is : whether the transfer of the leasehold rights is valid and sustainable in law ? It is true, as contended by Shri K.R. Chowdhary, learned counsel for the respondents, that clause (8) of Appendix to the Lease and clause (ix) of Rule 31 of the Rules, prohibit transfer or assignment or sub-lease of the leasehold interests in the mining lease, granted in favour of the lessee, except with prior permission by the competent authority after expiry of two years. At the relevant time, the competent authority was the Deputy Director. Exactly on expiry of 2 years from the date of the grant of the lease, P. Rama Rao had applied on October 7, 1992 for assignment of the lease in favour of magam Inc. and the next day, viz., October 8, 1992, the Deputy Director, promptly and willingly had ordered transfer to Magam Inc. of the leasehold rights had by P. Rama Rao. It does not appear that any publicity was given inviting objections from others. The question, therefore, is : whether the action taken by the Deputy Director is valid in law ?
4. It is true that a facade of compliance of law has been done by P. Rama Rao and Magam Inc. for having the transfer of the leasehold interests had by P. Rama Rao made in favour of the latter. The best of the legal brains will be available to escape the clutches of law and transactions would be so shown to be in compliance of semblance of law. In that pursuit, payment of royalty and permits remained in the name of P. Rama Rao. The court has to pierce through the process, lift the veil and reach the genesis and effect. Article 39 (b) of the Constitution envisages that the State shall, in particular, direct its policies towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. Socio-economic justice is the arch of the Constitution. The public resources are distributed to achieve that objective since liberty and meaningful right of life are hedged with availability of opportunities and resources to augment economic empowerment. The question is: whether the transfer is to subserve the above common good and constitutional objective ? It is true that when the individuals have been granted lease of mining of the property belonging to the Government, the object of such transfer was to augment the economic empowerment of the transferee by himself or by a cooperative Society or partnership composing persons to work out the mines to achieve economic empowerment. Whether such a transfer could be made a subterfuge to circumvent the constitutional philosophy and thereby the constitutional objective be sabotaged in that behalf ? Answer would be obviously in the negative. It is seen that the Government has amended the rules and given powers to the Director to grant assignment after the two years from date of leave from one firm, in favour of another firm of the lease rights obtained by one, and if it is sought to be transferred within two years, prior permission of the Government is required to be obtained. The object is to have control in the hanky - panky and shady transactions done in collaboration and collusion with the lower level officers for illegal gratification and to prevent the depletion of the assets of the State for personal benefit of the vested interests, defeating the constitutional objective behind Article 39(b) of the Constitution, the preamble and fundamental rights enshrined in the Constitution. This system of transfer would encourage corruption and nepotism and official acts done in secrecy would sabotage the constitutional objectives. Big fish will always eats away small fish in diverse forms, so as to drive the latter away from the area. Legal form of action, if given primacy, the constitutional objective would be easily defeated, creating monopoly in the market by few vested interests controlling the economy. The problem has to be broached from this perspective and must seek an answer to the question whether such transactions would elongate and subserve common good?
5. In this case, as rightly contended by Shri K.R. Chowdhary, there is a facade of compliance of law, but, as stated earlier, it is only a subterfuge to comply with the law and an attempt by a private company whose polishing centre is situated in Chittor District and Head Office in Madras to secure unjustifiable enrichment. We have got our own doubts with regard to the very constitution and genuineness of the partnership said to have been entered into between P. Rama Rao and other partners of Magam Inc. However, in this case, it is not necessary for us to go into that issue. Suffice it to state that the entire transaction is smacked of bonafides and would defeat the constitutional objectives. The Government should restructure their rules and contractual clauses consistent with constitutional philosophy. The Government, therefore, has rightly, though for different reasons, set aside the assignment of leases granted by P. Rama Rao and sub-lease in favour of Magam Inc. by exercising its suo motu power.
6. The appeal is accordingly allowed. The order of the High Court stands set aside and that of the Government stands confirmed, but in the circumstances, without costs.
Appeal allowed.
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