Court Rules Supplementary Lease Deed Not Essential for Extended Lease Period; Rejects State’s Royalty Demand Based on Notional Consumption Formula
In a significant judgment dated September 8, 2026, the Karnataka High Court (Division Bench comprising Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha) delivered a landmark ruling in favor of A.C.C. Limited (ACC) concerning its mining lease for limestone and shale in Kalaburagi district. The Court clarified critical legal issues relating to the extension of mining leases under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the assessment of royalty on minerals consumed.
The dispute arose from the State of Karnataka and the Department of Mines & Geology’s (DMG) contention that ACC’s mining activities after the expiry of its mining lease on February 18, 2023, were unauthorized because a Supplementary Lease Deed extending the lease term had not been executed. The State imposed a penalty of over Rs. 482 crore under Section 21(5) of the MMDR Act, alleging unlawful extraction of minerals. Furthermore, the State demanded royalty arrears calculated on a "notional consumption" basis, applying a fixed clinker-to-limestone ratio of 1:1.42, instead of actual weighment data maintained by ACC.
ACC challenged these actions through multiple writ petitions and revision applications. The Court’s judgment addressed three core issues:
1. Validity of Mining Operations Without a Supplementary Lease Deed During Statutory Extension:
The Court held that under Section 8A(5) of the MMDR Act, leases granted before January 12, 2015, for captive purposes, are statutorily deemed extended up to March 31, 2030, subject to compliance with lease terms. The Court ruled that ACC’s mining activities after February 18, 2023, were lawful and not without authority simply because the Supplementary Lease Deed was not executed. The statutory extension operates by law, and the execution of a supplementary deed is not a mandatory condition for continuing mining operations during the extended period. The Court relied on authoritative Supreme Court precedents distinguishing "extension" from "renewal" of leases and held that the lease continues in force during the extended period without a fresh deed.
2. Royalty Demand Based on Notional Consumption Ratio:
The Court scrutinized the State’s demand for royalty assessed on a normative basis rather than actual consumption. It considered the evidence that ACC had installed beltometers and weighbridges to measure limestone consumption accurately and maintained detailed weighment records. The Revisional Authority had earlier held that there was no credible basis to reject ACC’s actual weighment data or the accuracy of the measurement devices. The Court noted that the clinker-to-limestone ratio is not a fixed constant and can vary depending on raw material quality and plant operations. The State’s application of a fixed ratio without tolerance limits or proof of inaccuracies in ACC’s data was held to be unjustified. The Court emphasized that royalty must be paid based on actual minerals removed or consumed unless there is demonstrable reason to doubt the reported data.
3. Compliance with Lease Terms and Conditions:
While the State argued that ACC had not complied with terms, particularly by not paying royalty on the notional basis and not clearing alleged arrears, the Court found a bona fide dispute regarding royalty calculations. As the Revisional Authority’s order setting aside the notional royalty demand had attained finality, the Court held that non-payment of disputed amounts could not be construed as breach of lease conditions to deny the statutory extension benefit. The Court further observed that the statutory clearances required for mining were in place, and no valid ground existed to declare mining unlawful.
Additional Directions and Observations:
- - The Court directed the State and DMG to unblock ACC’s Integrated Lease Management System (ILMS) portal to enable normal mining operations and royalty payments based on actual weighment.
- - The State was ordered to execute the Supplementary Lease Deed without conditioning it on payment of disputed royalty arrears or a no-dues certificate.
- - The Court ordered refund of interim deposits made by ACC in connection with the disputed royalty demands.
- - The State’s challenge to the Revisional Authority’s order was dismissed for lack of merit and failure to comply with procedural requirements.
- - The judgment reaffirmed the legislative intent behind Section 8A(5) of the MMDR Act to mitigate hardships caused by delays in lease renewals by granting statutory extensions.
Background and Context:
ACC holds mining leases granted initially in 1963 and renewed periodically, with the latest lease (ML No.2641) valid until February 18, 2023. The MMDR Amendment Act, 2015 introduced Section 8A(5), providing deemed extensions to mining leases for captive mines until March 31, 2030, to address hardships faced by the industry due to renewal delays.
The State contended that ACC’s failure to execute a supplementary deed and pay royalty as per normative formula invalidated mining beyond lease expiry. ACC relied on statutory extension provisions and actual weighment data for royalty payment.
The controversy over royalty assessment has a long history, including a 2012 Government meeting deciding royalty should be based on actual weighment, and a 2019 Revisional Authority order remanding royalty disputes to the State. Despite these, the State continued to demand royalty on a notional basis.
Legal Significance:
This ruling clarifies that statutory extension under Section 8A(5) is effective by operation of law and does not require execution of supplementary deeds to validate continued mining activities. It underscores the principle that royalty must be assessed on actual minerals removed or consumed unless the State can prove inaccuracies in reported data, and mere disputes over quantum do not constitute breach of lease conditions to withhold statutory benefits.
The judgment also highlights the importance of adherence to orders of revisional authorities and the necessity for the State to base royalty demands on sound evidence rather than arbitrary norms.
The case sets a precedent for other mining leaseholders facing similar disputes over lease extensions and royalty assessments, promoting legal certainty and stability in the mining sector.
Bottom Line:
Mining activities carried out by lessee during the period of statutory extension under Section 8A(5) of the MMDR Act do not require execution of a supplementary lease deed; penalty under Section 21(5) for mining without valid lease is not sustainable on such ground - Royalty payable on actual measured consumption of mineral and not on notional basis unless weighment data is found unreliable.
Statutory provision(s): Section 8A(5), Section 9, Section 21(5), Section 30 of Mines and Minerals (Development and Regulation) Act, 1957; Rule 24A of Mineral Concession Rules, 1960; Section 105 of Transfer of Property Act, 1882.
A.C.C. Limited v. Union of India, (Karnataka)(DB) : Law Finder Doc Id # 2975935
