Recent Changes in Mines & Minerals (Development & Regulation) Act, 1957 and its impact on the mineral based industries
Recent Changes in Mines & Minerals (Development & Regulation) Act, 1957 and its impact on the mineral based industries The Apex Court held that auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than...
Recent Changes in Mines & Minerals (Development & Regulation) Act, 1957 and its impact on the mineral based industries
The Apex Court held that auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra-vires the constitutional mandate
Prologue
The Ministry of Mines, Government of India vide notification dated 28th March 2021 notified the Mines and Minerals (Development and Regulation) Amendment Act, 2021 ('MMDR'). The MMDR Amendment Act 2021 is in line with the reforms /changes brought in by the Government of India in the year 2015 wherein MMDR 1957 was amended to bring in certain changes including the Auction regime.
Prior to the MMDR 2015, mineral rights were granted either by (i) Reconnaissance Permit ('RP') (ii) issuing a Prospecting License ('PL') or (iii) Mining Lease ('ML') on first come first serve method. This system of allocation of mineral concession was discretionary and decision making was not transparent. The MMDR Amendment Act 2015 provides that mineral concessions will be granted only on the basis of bidding at an auction, for the prospecting stage or mining stage as the case may be. Mining leases shall be granted for a non-renewable period of 50 years. If the auction regime was immediately applied to the existing mining leases, many of which were captive mines supporting iron-steel, cement, power and other mineral based industries, the Govt. thought appropriate that (i) all existing leases shall be deemed to have been granted for a period of 50 years and on the expiry of the lease period, the lease shall be put up for auction. (ii) In the case of 'captive' mines, where the mineral is used for captive purpose, in case the 50-year period or current lease expires before 2030, the leases were deemed to be valid and extended till March 31, 2030. (iii) In the case of 'non-captive' mines, the validity of the ML was made till March 31, 2020 (or validity of current lease or 50 years – whichever is later)
Background of Auction Regime
The need for auction regime was felt after the Mining Scam1 which rocked the industry starting 2010 with the appointment of the Justice MB Shah Commission vide Notification No. SO 2817 (E) dated 22nd November 2010. The coal scam2 or the Coalgate which made headlines in March 2012, when the Comptroller & Auditor General (CAG) office accused the Government of India of allocating coal blocks in an inefficient manner during the period 2004–2009 resulting in a Central Bureau of Investigation (CBI) probe into whether the allocation of the coal blocks was in fact influenced by corruption. One of the arguments was the allocation of the mines was done in a non-transparent manner.
After the NDA Government came to power in 2014, the Mines and Minerals (Development and Regulation) Act (MMDR Act), 1957 was amended in 2015 with the intention of removing discretion and introducing more transparency in the allocation process of mineral concessions.
Background of MMDR 2021 Amendment
The Amendment of 2021 was after the recommendations of a High Level Committee ('HLC') constituted by the Government of India, which was headed by the Vice Chairman of NITI Aayog on Mines, Minerals and Coal Sectors. The following members were the members of the Committee: (i) Cabinet Secretary (ii) CEO, NITI Aayog (iii) Secretary Finance (iv) Secretary Mines Secretary Coal (v) Secretary Environment, Forest & Climate Change (vi) Secretary Revenue.
The Committee was constituted to recommend legislative, statutory and procedural changes required for accelerating the growth in the Mining Sector and also examine all existing laws, rules and regulations and suggest changes with a view to simplify the process as far as Ease of Doing Business.
Some of the key changes brought in by the MMDR 2021 are as follows:
Sl. No. | Existing provisions in the MMDR 1957/ 2015 | Changes brought by MMDR 2021 (Amended Act) (Impact: Positive / Negative |
|---|---|---|
1 | Captive Mines were not allowed to sell (i) coal by captive mines and (ii) other mineral except for captive consumption | Positive Amended provision in MMDR 2021 – Sec. 8(5) has been added where captive coal. This may facilitate better availability of coal as even captive mines are allowed to sell surplus coal upto 50% of its annual capacity after meeting the requirements of the end use plants. However such permission is not available for coal mines allocated for power projects awarded under a Competitive bidding for tariff including Ultra Mega Power Projects. Similarly under new provisions, viz., sub-section 7A in Sec.8 of the MMDR Act has been added - under the Amended Act, a captive mine can sell mineral (limestone) upto 50% of its annual capacity after meeting the requirements of its attached plant. In that case, an additional amount (equivalent to royalty has to be paid) for the mineral sale. However such sale of coal/ minerals would be subject to payment of additional royalty as specified in Sixth Schedule of the Act (which ranges from additional royalty of 100% to 200%) This will generally improve the availability of the mineral and an enterprise has the option to generate revenue from mining operations. |
2 | Under Sec.10A of the MMDR Act, in case a Company was having Reconnaissance Permit (RP) or Prospecting License (PL), for all such pending RP / PL, the RP/PL holder could apply for issue of Mining Lease (ML) | Negative The provision of Sec. 10A(2)(b) relating to grant of Mining Lease ('ML') has been deleted. This has affected all pending PL to ML cases. The Saving provisions are deleted and the right to obtain a mining lease will lapse on the date of commencement of MMDR Amd Act 2021. This amendment is negative for the industry as now the same ML can only be granted under auction and all efforts made by any enterprise in terms of prospecting operations are lost. |
3 | Companies having Letter of Intent ('LOI') had a right to get the Mining Lease (ML) with a period of 2 years, i.e. till 11th January, 2017 | Negative The provisions of Sec. 10A(2)(c), beingtransitory provisions, with respect to LOI have been deleted/ removed. This may affect cases which are subjudice before Courts and where challenges were made after the MMDR Amd. Act 2015. |
4 | Sec.12A of MMDR Act - Transfer of Captive Mines required additional payment - mines allotted for captive purposes were permitted for transfer with prior permission and payment of Transfer Charges @80% of the royalty paid plus upfront payment of 0.5% of the value to estimated resources. | Positive A new proviso to Sec.12A (2) has been added which states that - the transferee of mining lease shall not be required to pay the amount or transfer charges as it stood prior to the commencement of the MMDR Amendment Act, 2021, after such commencement however no refund shall be made of the charges already paid. This is a very positive development and will facilitate/ make M&A activity in mineral based industries. |
5 | No Explanation to words "Without any Authority of Law" with respect to treatment of Illegal Mining. Huge demands equivalent to the mineral value were made by the State Govt. if mining was done in or with Environment /other clearance due Supreme Court judgment in the Common Cause case | Positive The Amended Act has clarified that 'Illegal Mining' means – "raising, transporting or causing to raise or transport any mineral without any Lawful Authority shall mean raising, transporting any mineral by a person with a PL, ML or Composite License or in contravention of the Rules" Post the Common Cause vs. Union of India WP No.114 of 2014 judgment, State Governments have been raising demands upto 100% of the entire mineral value in case of mining beyond the approved quantity or violation of Environment Clearance ('EC') or any other breach. The amendment has now clarified through the Explanation to Sec.21(4)/(5) of MMDR to define 'Illegal mining' - to replace the words "without any lawful authority" with the words "in contravention of the provisions of this Act and rules made thereunder". Hence only in case of mining without a valid ML, will be deemed to be without Lawful Authority and breach under any other Act with respect to a ML would be treated under the respective Acts. The amendment is prospective from on and from the date of commencement of the MMDR Amendment Act 2021 (28th March 2021), however, in my considered view, the rationale can be applied to even past cases, where the breach is limited to a particular Act. |
6 | Under Sec.4-A of the MMDR Act, 1957 – a Mining Leases (ML) which has not commenced operations or has discontinued the operations for a period of two years, would lapse. However if an application was made before such lease lapses, and the State Govt. is satisfied that the holder of ML was not able to commence mining operations or the mining operations was discontinued for reasons beyond the control of such lease holder, then on an application before lapsed – make an order that such lease shall not lapse. Even after a ML was lapsed, on a Revival application to made within 6 months of the ML lapse and if the State Govt. was satisfied that such non-commencement or discontinuance of mining operations was beyond the control of the lease holder, the Govt. would pass an order Reviving the lease. Such Revival was allowed twice during the entire Mine period of lease. | Negative The amended proviso now only provides a period of two years for operation to commence or be discontinued for a period of two years and one extension of one year period (when compared to the earlier regime where mines on application made were not allowed to lapse and even after lapsing, the mines could be revived twice during the entire lease period) and hence the maximum extension is for a period of one year. Revival provision has been deleted. Further, the word "Mining Operation" substituted with the "Production and Dispatch". It means that lessee has to start production and dispatch within the said two years plus one year extension otherwise lease will be lapsed. This is a major shift and it will have wide ranging ramifications on the mining industry. |
7 | No provision for transfer of rights, approvals, licenses and permits where a ML expired and was put to auction. | Positive Enabling provisions for transfer of all valid rights, approvals, clearances, licenses and the like granted to a lessee in respect of a mine would continue to be valid even after the expiry or termination of the ML and such rights, approval, clearances, licenses shall be transferred to and vested to the successful bidder of ML under auction. |
8 | No Provisions with respect to Auction by the Central Govt. if State Govt. fails to conduct auction of mines | Auction of Minerals – Proviso to Sec.10B – added wherein, if the State Govt has not completed auction for the purposes of granting Mining Lease ('ML') of any mineral or where after the completion of auction, the ML or Letter of Intent ('LOI') has been terminated or lapsed for any reason whatsoever, the Central Government ('CG') may require the State Govt to conduct and complete the auction/ re-auction, as the case may be within a period fixed in consultation with the State Government ('SG') and where such auction/ re-auction process is not completed within such period, the CG may conduct auction for grant of ML for such area. |
Analysis of the MMDR Amendment Act 2021
The Government has brought in the amendment to the MMDR Act, 1957 with all good intentions and the same is evident from the rationale reflected in the State of Objects and Reasons of The Mines & Minerals ( Development & Regulation) Amendment Bill, 2021, which states as follows "In order to fully harness the potential of the mineral sector, increase employment and investment in the mining sector including coal, increase the revenue to the States, increase the production and time bound operationalization of mines, maintain continuity in mining operations after change of lessee, increase the pace of exploration and auction of mineral resources and resolve long pending issues that have slowed the growth of the sector, it is felt necessary to further amend the said Act".
Hence the trust area is to increase the production and time bound operationalization of mines and maintain continuity in mining operations, especially after change of lease. Same is evident from the fact that the MMDR Amd. Act 2021 - under Sec.4A of the Act has brought in the concept of "production and dispatch' in relation to 'mining operations'. Prior to the amendment, it was sufficient to mine the mineral and it was not linked to dispatch. This is a major shift as the word 'mining operations' has been substituted for the words 'production and dispatch'. It only when the mined mineral is dispatched that the operations of the mines would be complete and this will ensure revenue generation and mineral availability.
Sec.4-A deals with circumstances in which Prospecting Licenses ('PL') or Mining Lease ('ML') can be terminated. As has been reflected above, one of the major change in the MMDR Amd. Act, 2021 is a major shift in the way a ML would lapse/ terminated. Under MMDR 1957, in case a Mining Leases (ML) which has not commenced operations or has discontinued the operations for a period of two years, would lapse. However if an application was made before such lease lapses, and the State Govt. is satisfied that the holder of ML was not able to commence mining operations or the mining operations were discontinued for reasons beyond the control of such lease holder, then on an application before lapsed – make an order that such lease shall not lapse. Even after a ML was lapsed, on a Revival application to made within 6 months of the ML lapse and if the State Govt. was satisfied that such non-commencement or discontinuance of mining operations was beyond the control of the lease holder, the Govt. would pass an order Reviving the lease. Such Revival was allowed twice during the entire Mine period of lease. The amended proviso now only provides period of two years for operation commence or discontinued the operations for a period of two years and one more extension of one year period (when compared to the earlier regime where mines on application made were not allowed to lapse and even after lapsing, the mines could be revived twice during the entire lease period) during the entire lease period and hence the maximum extension is for a period of three years. This is a major shift and it will have wide ranging ramifications on the mining industry. This needs to be understood in the context that after a ML is granted, a lease holder needs to arrange for a host of approvals from – Environment Clearance, Consent to Establish and Operate under the Water (Prevention & Control of Pollution) Act, Air (Prevention & Control of Pollution) Act, approval of Mining Plan, needs to arrange Surface rights for the lease holder to enter the land. There are various other minor approvals, which were not even considering. Practically it may be very difficult for a new ML to get all the approvals within a period of two years or three years (max extension) as well as surface rights to enter the land. Further, for any reasons, if the mines are not operational for a continuous period of two years, even in such a scenario the ML will lapse and only a single extension of two plus one year (i.e., three years) can be granted during the entire period of lease. While, I appreciate the intent of the Government to encourage ML holder not to hoard minerals and block them by simply signing the ML and the focus on production and dispatch, some where the practical aspects have been missed and hence the whole intent of purpose of increasing mineral availability may be lost. The solution could have been if the State Government(s), puts only such mineral block as a Turnkey block, where all approvals, surface rights acquired and arranged by the government itself is readily available and the bidder has to just pay the premium and auction and can start mining for day one. It is long time that the Government looks at the Turnkey model for mines and other similar infra projects as this may not only fetch better revenue from the prospective bidders but at the same time it will improve the overall Ease of Doing Business, bringing in more investment, employment generation and revenue for the Government.
The other major shift is termination of the rights under Sec.10-A(2)(b), wherein by the Amd Act. 2021 has added a proviso stating that all pending cases covered under Sec.10(2)(b), the right to obtain a Prospecting license ('PL') followed by a Mining lease ('ML') or a mining lease, as the case may be, shall lapse on the date of commencement of the MMDR Amd Act 2021. This amendment has been brought without providing any time period of notice for all pending cases. There are many cases where a PL holder has invested sufficient time and effort conducting the prospecting operations and was on the verge of executing the ML. Rights of all such enterprise has been adversely affected. In my considered view, all such cases where a LOI was issued and an enterprise has completed all formalities and was just left with execution of ML should have treated differently by providing a transitory provisions for a period of 12 months from the date the amendment was notified. All such cases were the ML could have been executed; the mining could have started, thereby ensuring increase production. It will take quite some time for such PL/ ML cases to be allocated after auction as many of these cases have been challenged in various High Courts and are currently sub-judice.
Some of these above changes have been slightly negative for the mining industry and the Govt has its own justification and rationale for bringing in the amendments. The Govt at the same has brought in certain positive changes, (i) Captive mines – both coal as well as other minerals have been allowed to sell upto 50% of their production (after first meeting the requirement of their end use plants) on payment of additional royalty. This will improve the mineral availability and at the same time generate additional revenue for the Government. It would be interesting to analyse the data on this aspect (captive mines selling coal/ mineral to external parties) after a couple of years. (ii) Deletion of provisions related to payment of Transfer Charges for transfer of captive mines. Prior to the 2021 Amendment Act, Transfer Charges @80% of the royalty paid plus upfront payment of 0.5% of the value to estimated resource was required to be paid while seeking approval for transfer of Mining Leases. This will facilitate Mergers & Acquisition (M&A) in the field of mineral based industry. However the implication of Stamp Duty payable to the State Govt(s), for registration of ML would be payable as the same is governed as per the Indian Stamp Act.
Epilogue
It is not possible to discuss the entire issues which are currently affecting the mineral based industry in this article at the same time the MMDR Amd 2021 has brought in a mix bag. The debate is still on whether 'auction' is the only / best model for allocating natural resources as even the Hon'ble Supreme Court vide its judgment dated 27th Sept. 2012 in the Presential Reference case (Special Reference No. 1 of 201) held that auction is just one of the several price discovery mechanisms. In para 148 of the above judgment – the Apex Court held that, "In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra-vires the constitutional mandate". At the same time, auction as a mechanism to allot mining leases is the law and reality. Considering various aspects affecting the industry and also considering the intent of the Govt. to improve the mineral availability to drive the 'Make in India' initiative, as has been stated in the National Mineral Policy 2019, States should auction mineral blocks with preembedded environment and forest clearances.
https://en.wikipedia.org/wiki/Indian_coal_allocation_scam
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.
N.B. Views expressed here are personal and not the views of the organization where I am working.