The In-House Lawyer

The process of the grant of mineral concessions under Indian mining law is based on the concept of the first-come-first-serve principle, which is a principle of preferential allotment for activities relating to prospecting and mining in favour of a person that discovers the mineral potential of any area concerned. Such a principle is well recognised in the global mining fraternity and has been adopted in various jurisdictions by appropriate legislative provisions. 


The objective behind this principle is to appropriately encourage individuals that venture to explore and prospect areas that appear to carry adequate potential in terms of mineral wealth. Mining ventures for the development of mineral projects to profitability is a task that is heavily capital intensive, involving complex technical resource allocation and feasibility studies, along with all associated infrastructural, operational and capital costs. 


In such a scenario, the first-come-first-serve principle encourages entities to pursue exploration, adequately rewarding them with entitlements of preference for being the first to discover and optimise the mineral wealth of an area that might have been merely nascent. The significance of such a principle cannot be over-emphasised. The December 2006 National Mineral Policy Report of the High Level Committee by the Planning Commission (Government of India) makes significant observations as regards its importance.
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Statutory recognition of preferential rights under S11(2) of the Indian Mines and Mineral (Development and Regulation) (MMDR) Act 1957


As is apparent from a perusal of the Statement of Objects and Reasons of the MMRD Act 1957 itself, one of the reasons for the repeal of the earlier MMRD Act 1948 was for the provision of preferential status to first-time applicants in the parent legislation itself, instead of in the supporting rules framed under the 1948 legislation. 


As is evident from a reference to the provision prior to the 1999 amendment to the MMRD Act 1957, the principle of preferential treatment for obtaining a mining lease was expressly conferred under subsections (1) (in favour of a licensee that had a pre-existing prospecting license over an area of land) and (2) (in favour of an applicant whose application was received earlier than another’s application for the same piece of land). Such preferential status, however, was qualified in terms of the criteria set out under subsection (3) in cases where the applications of the prior and later-day applicants were received on the same day. Such preferential treatment was further qualified, albeit in very limited circumstances and for special reasons, over and above those stipulated under subsection (3), under the provisions of subsection (4) (presently s11(5)). 


In its present wording, the main provision in s11(2) echoes the ‘first-in-time’ principle by according preference to a prior applicant for grant of reconnaissance permit, prospecting licence or mining lease, over later applicants in cases where the State Government has not issued any notification. A reading of the provision, along with a detailed analysis of the Report of the Committee to Review the Existing Laws and Procedure for Regulation and Development of Minerals set up by the Ministry of Mines, Government of India (as submitted to the Government of India in January 1998), makes it unequivocally clear that the main provision in s11(2) applies to ‘virgin areas’, ie those areas that have not yet been notified by the State Government as available for grant.


Exceptions


The principle of preferential rights can, however, be overridden in certain circumstances: 


1. The first proviso to s11(2) carves out an exception to the preferential right based on priority of applications in point of time referred to in the main provision. It makes it clear that where the State Government subsequently issues a notification in respect of the ‘virgin lands’ inviting applications for grant, the prior and subsequent applications to the notification would be considered as if they were filed on the same day, and no priority in order of time would be given. The second proviso to the main s11(2) then requires the State Government to examine the matters specifically set out in s11(3), while considering the applications for grant in such cases.

2. Section 11(5) of the MMDR Act 1957 again carves out an exception to the preference in favour of prior applicants in the main provision of s11(2). It permits the State Government, with the prior approval of the Central Government, to disregard the priority in point of time in the main provision of s11(2), and to make a grant in favour of a latter applicant as compared to an earlier applicant for special reasons to be recorded in writing. These ‘special reasons’ are to be objectively established, and founded on sound guiding principles and considerations, such as those relating to public interest and economic development of the State.² 


1999 Amendment to THE MMDR ACT 1957 is prospective in operation and does not apply to mining applications prior to its introduction ³ 


As is manifest from the legislative history of the MMDR Act 1957, preferential rights under s11(2) are a substantive statutory right granted in favour of the first applicant. Being such a substantive right, any stance that argues the opposite and specifically that pre-existing preferential rights are taken away by a subsequent amendment of the legislation, such as the 1999 amendment, cannot be sustainable.⁴ It is pertinent in this regard that the amendment to s11 of the MMDR Act 1957 does not contain any words that show any intention to affect the existing rights as they play out. In the absence of any such express qualification, the 1999 amendment cannot be said to extend to any application that significantly may have been made prior to it and, in respect of which application, a preferential right as per the provisions of the MMDR Act 1957 can be said to have unambiguously accrued. 


It is also notable that, at times, the preferential rights of prior applicants under s11(2) (ie those applicants who have applied for mining leases prior to the issuance of any notification by the State Government declaring a land as available for grant) may be kept in abeyance until the relevant State Government authorities actually take up their applications for considerations. In this regard, it must be noted that the State Government is obliged to dispose of such applications within a stipulated period of time as per the provisions of Rule 63A of the Mineral Concession Rules 1960 framed under the MMDR Act 1957. In the event a state government does not dispose of such applications within such stipulated timelines, it cannot take advantage of its own wrong, by seeking to vitiate the pre-existing vested rights of prior applicants and insist that such prior applicants fall in line with those applicants who have made applications for leases subsequent to the issuance of a particular notification by the State Government declaring a land as available for prospecting or mining.⁵ 


To summarise, the ‘first-in-time’ principle of preferential rights as per s11(2) of the MMDR Act 1957, is sacrosanct. This principle can, however, be overridden in certain limited circumstances – one of them being for ‘special reasons’ as mentioned in s11(5) of the MMDR Act 1957, and the other being when the State Government subsequently introduces a notification in respect of a land and requires, under s11(2), for all prior and post notification applicants to be technically treated as ‘same day applicants’.⁶ 


The views expressed are those of the authors and do not reflect the official policy or position of Amarchand Mangaldas.


By Manu Nair, partner, and Sannjh Purohit, associate, Amarchand Mangaldas.


E-mail: manu.nair@amarchand.com; sannjh.purohit@amarchand.com.