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        REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  2206 OF 2013 (Arising out of S.L.P. (C) No.16139 of 2010)

State of Orissa & Ors. …Appellants

Versus

M/s Mesco Steels Ltd. & Anr. …Respondents

J U D G M E N T

T.S. THAKUR, J.

1. Leave granted.

2. This appeal arises out of a judgment and order dated  

16th May,  2008  passed  by  the  High  Court  of  Orissa  at  

Cuttack whereby Writ Petition No.14044 of 2006 filed by the  

respondent-company  has  been  allowed,  an  inter-

departmental communication in the form of a letter dated  

19th September, 2006 addressed by the Director of Mines to  

Joint Secretary to Government of Orissa quashed and by  

writ  of  mandamus  the  State  Government  directed  to  

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execute  a  mining lease  for  an  area  measuring 1519.980  

hectares in favour of the respondent-company.

3. By Notification No.647/91 dated 23rd August, 1991, the  

Government  of  Orissa  de-reserved  and  threw  open  

Iron/Manganese  Ore  areas  spreading over  282.46 square  

miles  in  five  blocks  located  in  Keonjhar  and  Sundergarh  

districts in the State.  Applications were then invited from  

interested private parties in terms of Rule 59 of the Mineral  

Concession Rules, 1960 for grant of prospecting licenses and  

mining leases  in respect  of  the said blocks.  The exercise  

was, it appears, intended to boost the economy of the State  

by ensuring optimum utilisation of its mineral reserves and  

in the process generating employment opportunities for the  

predominantly tribal population inhabiting the two districts  

of the State. The invitation to apply for leases and to set up  

steel plants was open to all leading steel manufacturers.  

4. In response to  the advertisement  notice  applications  

were received from different parties including one filed by  

respondent-Mesco Steels Ltd.  These applications appear to  

have  been  evaluated,  culminating  in  a  conditional  

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recommendation made by the State Government in favour  

of the respondent-company. One of the conditions which the  

State Government imposed in exercise of its power under  

Rule 27 (3) of the Mineral Concession Rules, 1960 required  

that  the  lessee  shall  set  up  two full-fledged Steel  Plants  

within a reasonable time to be intimated by the lessee at  

the time of issue of the terms and conditions for the grant of  

the  proposed  mining  lease.  The  other  condition  required  

that the lessee would utilise the entire iron ore extracted  

from the lease area for meeting the captive requirement of  

the Steel Plants to be set up at Duburi and Jakhapura and  

that no commercial trading of the mining material shall be  

carried out by it.   

5. By an order dated 7th January, 1999 the Government  

of India, Ministry of Steel and Mines, Department of Mines,  

conveyed the approval of the Central Government for grant  

of the mining lease for extraction of iron ore from an area  

measuring  1011.480  hectares  in  villages  Kadakala  and  

Luhakala besides an area measuring 508.500 hectares in  

villages Sundara and Pidapokhari in district Keonjhar for a  

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period of 30 years. The approval was subject to the State  

Government ensuring compliance of the amended provisions  

of  the  Mines  and Minerals  (Regulation and Development)  

Act,  1957  and  the  Rules  made  thereunder  besides  the  

provisions  of  the  Forest  (Conservation)  Act,  1980  and  

Notification  dated  27th January,  1994  issued  in  terms  

thereof.  

6. On  receipt  of  the  approval  from  the  Central  

Government  the  State  Government  conveyed  to  the  

respondent-company the  terms and  conditions  subject  to  

which it proposed to grant a mining lease for mining of iron  

ore from the area mentioned above which included 377.690  

hectares of forest land in villages Sundara and Pidapokhari  

of Keonjhar district. A letter dated 8th February, 1999 issued  

by  the  State  Government  to  the  respondent-company  

stipulated the terms and conditions that would govern the  

proposed  mining  lease  and  required  the  respondent-

company to convey its acceptance to the same. In response,  

the respondent-company by its letter dated 15th February,  

1999 conveyed its  unconditional  acceptance of  the  terms  

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and conditions stipulated in the letter mentioned earlier. The  

acceptance letter was followed by another letter dated 13th  

March,  1999 by which  the  respondent-company informed  

the State Government that it had already taken steps for  

preparation  of  a  mining  plan  and  initiated  action  for  

preparation and approval of de-reservation proposal for the  

mining  lease  in  village  Sundara  and  Pidapokhari  over  an  

area  measuring 508.500 hectares  said to  be  forest  land.  

What  is  significant  is  that  the  respondent-company  also  

pointed out that it was on the verge of completion of its  

Steel Plant at Kalinga Nagar, Industrial Complex, Sukinda,  

P.O. Danagadi, District Jajpur, Orissa which was expected to  

be  commissioned  by  April/May,  1999.  The  State  

Government eventually sanctioned the grant of a lease in  

favour of the respondent-company to the extent indicated  

earlier in terms of its order dated 17th March, 1999.

7. By a  letter  dated  19th June,  2000 addressed to  the  

respondent-company  the  State  Government  pointed  out  

that the company had failed to submit the required mining  

plan and obtain the approval of Ministry of Environment and  

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Forest,  Government  of  India,  in  regard  to  forest  land  

involved in the proposed mining lease despite extension of  

time  allowed  to  the  respondent-company  by  the  

Government in terms of its letter dated 11th October, 1999.  

The State Government further pointed out that on account  

of the company’s inaction in the matter of setting up the  

proposed  two  steel  plants,  IDCO  had  initiated  action  for  

cancellation of allotment of 3100 acres of land allotted in  

favour of MESCO Kalinga Steel Plant, the sister concern of  

the  respondent-company,  for  the  proposed  steel  plant,  

captive  power  plant  and  township.  The  letter  in  that  

backdrop  invited  the  respondent-company  for  a  personal  

hearing in terms of Rule 26(1) of the Mineral Concessions  

Rules, 1960 to discuss whether the iron ore required by the  

respondent-company for the steel plant which was already  

in existence could be assessed to enable the company to  

retain the iron ore deposits required for the said plant and  

restore back the remainder to the Government.  

8. The respondent-company acknowledged receipt of the  

letter above mentioned and, inter alia, pointed out that the  

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mining  plan  for  the  entire  area  had  been  prepared  and  

submitted  separately  on  31st January,  2000.  It  was  also  

pointed  out  that  out  of  the  total  extent  covered  by  the  

proposed lease only 508.500 hectares was forest land for  

which extent alone was a diversion proposal required to be  

submitted. It also referred to certain other steps taken by  

the company like survey and demarcation of the area which  

was underway. More importantly, the company stated that it  

had already invested Rs.57.12 crores in the project but had  

to put the same on hold on account of the steel  market  

passing through  a  lean  phase  because  of  which all  steel  

majors were facing problems due to a glut in the market.  

The  respondent-company  claimed  to  have  undertaken  

substantial work for developing the mine including financial  

participation  by  a  Canadian  company  and  assured  the  

Government  that  the  proposed  project  would  create  

enormous job opportunities for the people of Orissa.   

9. For nearly four years thereafter the matter appears to  

have  remained  pending  for  a  final  decision  at  different  

administrative levels in the Government. What is significant  

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is that by letter dated 26th May, 2004 the Director of Mines,  

Orissa, wrote to the Joint Secretary, Department of Steel  

and Mines,  Government of Orissa,  inter  alia,  pointing out  

that  an  area  measuring  469.25  hectares  included  in  the  

proposed lease in favour of the respondent-company was  

overlapping with the area recommended for allotment to the  

Orissa Mining Corporation Ltd.  and that  even though the  

Government  had  moved  for  elimination  of  the  said  

overlapping area in terms of Director’s letter dated 1st June,  

2000, no formal Government order in the matter had been  

received.  The  Director  further  pointed  out  that  D.F.O.,  

Keonjhar  had  reported  in  terms  of  its  letters  dated  15th  

January, 2004 and 7th February, 2004 that major portion of  

the surveyed and demarcated area came under Khandadhar  

D.P.F. and was reported to be forest land as per column 7 of  

the D.L.C. report to which effect an affidavit had also been  

filed before this Court by the State Government. It was also  

mentioned that the Mining Officer had reported that an area  

measuring  692.6953  hectares  out  of  the  surveyed  and  

demarcated area of 802.6678 hectares came under forest  

land which attracted the provisions of Forest Conservation  

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Act, 1980. Clearance from the Ministry of Environment and  

Forests,  Government  of  India,  was,  therefore,  absolutely  

necessary for execution of any mining lease in respect of the  

said area and till such time this essential pre-condition was  

not fulfilled, the execution of the lease deed was not legally  

permissible.  By another letter dated 19th September, 2006,  

the  Director  of  Mines  recommended  re-allocation  of  

resources  based  on  the  requirement  of  iron  ore  for  the  

existing steel plant set up by the respondent-company. It  

was  further  recommended  that  the  respondent-company  

should not be permitted to carry on any trading activity in  

iron ore removed from the area to be allocated in its favour  

based on its actual requirement for the existing unit.

10. Aggrieved  by  the  said  inter-departmental  

communication the respondent-company filed Writ Petition  

No.14044  of  2006  before  the  High  Court  of  Orissa  at  

Cuttack in which the company prayed for quashing of the  

recommendations made by the Director of Mines proposing  

to  reduce  the  lease  area  granted  to  the  respondent-

company and prayed for a mandamus directing the State  

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Government to execute the mining lease in respect of the  

entire 1519.980 hectares of land in the villages mentioned  

earlier. By an order dated 1st February, 2007 the High Court  

directed maintenance of status quo. Despite the said order,  

however, the Government of Orissa issued a notice dated 6th  

February,  2007  by  which  it  called  upon  the  respondent-

company to show cause as to why the overlapping area of  

469.25  hectares  of  the  State  PSU and  921.258  hectares  

granted in excess of the captive requirement of the unit set  

up by the respondent-company may not be deducted from  

the  total  mining  lease  area  of  1519.980  granted  to  the  

company.  The High Court  ignored the  show cause notice  

primarily on the ground that the same had been issued in  

the teeth of the interim order by which the parties had been  

directed to maintain status quo, and eventually came to the  

conclusion that the proposed reduction of the mining lease  

area whether on account of the alleged overlapping of the  

areas with the area approved for Orissa Mining Corporation  

or on account of the failure of the respondent-company and  

its sister concern to set up the second steel plant was not  

justified.  The  High  Court  held  that  although  the  State  

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Government had not issued any final order so far regarding  

the deduction of the area yet since a final decision appeared  

to have been taken by it, thereby implying that the issue of  

a show cause notice after taking of such a decision was a  

mere formality. In coming to that conclusion, the High Court  

placed reliance upon paragraph 8 of the counter  affidavit  

filed by the State Government before the High Court.  The  

High Court also held that in the absence of a mining lease in  

favour of the respondent-company, it could not take the risk  

of setting up of a steel plant.  The High Court accordingly  

quashed  letter  dated  19th September,  2006  and  by  

mandamus  directed  the  State  Government  to  execute  a  

formal mining lease in favour of the respondent-company.  

The  present  appeal  assails  the  correctness  of  the  said  

judgment of the High Court as already noticed earlier.

11. Appearing  for  the  appellant,  Mr.  U.U.  Lalit,  learned  

senior  counsel,  made  a  three-fold  submission  before  us.  

Firstly,  he  contended  that  the  writ  petition  filed  by  the  

respondent-company  was  manifestly  premature  as  the  

Government had not taken any final decision that could have  

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been  challenged by the  respondent-company nor  was the  

writ petition, according to the learned counsel, maintainable  

against  a  mere  inter-departmental  letter  dated  19th  

September, 2006, which did not by itself finally decide any  

right or obligation of the parties so as to furnish a cause of  

action to the respondent to challenge the same in the extra  

ordinary writ jurisdiction of the High Court. Secondly, it was  

contended that even if the letter could be described as a final  

decision taken by the  State  Government  in regard to  the  

reduction of the lease area, the respondent-company ought  

to have taken recourse to proceedings under Section 30 of  

the Act before the Central Government instead of rushing to  

the High Court in a writ petition.  Thirdly, it was contended  

that the very issue of a show cause notice to the respondent-

company  suggesting  reduction  of  the  lease  area  after  

assessment of the actual requirement by reference to the  

plant already set up, meant that the Government had not  

taken  any  final  decision  in  the  matter  and  that  the  

respondent-company could say whatever it intended to say  

in opposition to the action proposed in the show cause notice  

where upon the Government could notify a final order on the  

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same,  which  order  could  then  be  challenged  by  the  

respondent-company either before the Central Government  

or  before  the  High  Court  in  a  writ  petition  if  otherwise  

permissible.  Inasmuch as the High Court ignored the show  

cause  notice  and  proceeded  on  the  assumption  that  the  

same was an exercise in futility,  it  fell  in a serious error,  

argued Mr. Lalit. The proper course, according to the learned  

counsel, was to allow the State Government to take a final  

view on the show cause notice after considering the response  

which the respondent-company may have to make.

12. On behalf of the respondent-company it was contended  

by Mr. Rakesh Dwivedi, learned senior counsel, that although  

the show cause notice issued by the appellant-State had not  

been specifically challenged in the writ proceedings before  

the  High Court,  this  Court  could look into the  notice  and  

examine  whether  the  same  had  been  validly  issued  on  

grounds and material that are legally tenable. He urged that  

although the State Government may be competent to recall  

its  recommendations  in  exceptional  situations,  any  such  

exercise of powers of recall can never be exercised arbitrarily  

or whimsically. At any rate, the exercise of power of recall  

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was, according to the learned counsel, wholly unjustified in  

the  facts  and  circumstances  of  this  case  as  the  whole  

attempt  of  the  Government  appeared  to  be  to  somehow  

deprive the respondent-company of the benefit of the mining  

lease already sanctioned in its favour. It was also contended  

that the question of overlapping of the area had since been  

examined  and  rejected  by  the  State  Government  as  was  

apparent from the Minutes of the Meeting held in the office of  

the Chief Minister on 29th October, 2001, a copy whereof has  

been  placed  on  record  as  Annexure  R-1.  It  was  also  

contended that the State Government was making much ado  

about nothing regarding the setting up of the second steel  

plant and that the same was no more than a pretext to deny  

to  the  respondent-company  its  rightful  due  under  the  

sanction order  issued by the Central  Government and the  

grant made by the State.  It was contended by Mr. Dwivedi  

that the requirement of an approved mining plan which was  

one of the conditions for the grant of lease had already been  

complied with while the execution of a lease deed could be  

made subject to the clearance of the project and the grant of  

a  no objection by the  Ministry of  Environment  and Forest  

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under Section 2 of the Forest (Conservation) Act, 1980. The  

order  passed  by  the  High  Court  could  to  that  extent  be  

modified, argued Mr. Dwivedi. Inasmuch as the High Court  

had not  taken  note  of  the  requirement  of  such clearance  

being essential not only under the Act aforementioned but  

also because of the directions issued by this Court in  T.N.  

Godavarman Thirumulkpad v.  Union of  India  & Ors.  

(1997) 2 SCC 267, it had no doubt committed a mistake  

but that did not warrant, setting aside of the entire order  

passed by the High Court.  

13. We  have  given  our  anxious  consideration  to  the  

submissions made at the bar.  The following questions, in our  

opinion, arise for determination:

(1) Whether  the  writ  petition  filed  by  the  respondent-

company was premature, the same having been filed against  

an  inter-departmental  communication  that  did  not  finally  

determine any right or obligation of the parties?

(2) Whether the show cause notice could be ignored by the  

High Court simply because it had been issued in violation of  

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the  interim  order  passed  by  it  requiring  the  parties  to  

maintain status quo?

(3) Whether the show cause notice was without jurisdiction  

and could, therefore, be quashed?

14. We propose to deal with the questions ad seriatim.

Regarding Question No.1

15. The  writ  petition,  as  already  noticed  above,  was  

directed against a communication that had emanated from  

the office of Director of Mines and brought forward certain  

factual aspects relevant to the question whether a lease deed  

could be immediately executed in favour of the respondent-

company. A careful reading of the said communication would  

show that it was issued in pursuance of a letter dated 12th  

January,  2006  from  the  Joint  Secretary,  Government  of  

Orissa to the Director of Mines and another letter dated 29th  

August, 2006. By the former letter the Joint Secretary to the  

Government  had  instructed  the  Director  of  Mines  to  take  

action  pursuant  to  certain  directions  issued  by  the  Chief  

Minister of Orissa. This included making a real assessment of  

the  requirement  of  respondent-company  and  permitting  

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execution of a lease deed subject to clearance of the Ministry  

of  Environment  and  Forest,  Government  of  India.   The  

instructions issued to the Director of Mines also required him  

to resume the excess area for reallocation of the same to  

other deserving parties. The Director of Mines had responded  

to the said communication and assessed the mineral deposits  

in the area by reference to maps and surveys and made a  

recommendation back to the State Government. It is obvious  

from a conjoint reading of letter dated 12th January, 2006  

and communication dated 19th September, 2006 sent by the  

Director of Mines in response thereto that a final decision on  

the  subject  had  yet  to  be  taken  by  the  Government,  no  

matter  the Government may have provisionally decided to  

follow the line of action indicated in its communication dated  

12th January, 2006 issued under the signature of the Joint  

Secretary, Department of Steel and Mines. It is noteworthy  

that there was no challenge to the communication dated 12th  

January, 2006 before the High Court nor was any material  

placed before us to suggest that any final decision was ever  

taken by the Government on the question of deduction of the  

area granted in favour of the respondent so as to render the  

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process  of  issue  of  show  cause  notice  for  hearing  the  

respondent-company an exercise in futility. On the contrary,  

the issue of the show cause notice setting out the reasons  

that impelled the Government to claim resumption of a part  

of  the  proposed lease  area  from the  respondent-company  

clearly suggested that the entire process leading up to the  

issue of the show cause notice was tentative and no final  

decision on the subject had been taken at any level. It is only  

after  the Government  provisionally decided to resume the  

area in part or full that a show cause notice could have been  

issued. To put the matter beyond any pale of controversy,  

Mr. Lalit made an unequivocal statement at the bar on behalf  

of  the  State  Government  that  no  final  decision  regarding  

resumption of any part of the lease area has been taken by  

the State Government so far and all that had transpired till  

date must necessarily be taken as provisional. Such being  

the case the High Court was in error in proceeding on an  

assumption  that  a  final  decision  had  been  taken  and  in  

quashing  what  was  no  more  than  an  inter-departmental  

communication constituting at best a step in the process of  

taking a final decision by the Government. The writ petition  

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in  that  view  was  pre-mature  and  ought  to  have  been  

disposed  of  as  such.  Our  answer  to  question  No.1  is  

accordingly in the affirmative.

Regarding Question No.2

16. In  the  light  of  what  we  have  said  while  deciding  

question No.1 above,  this question should not  hold us for  

long.  It is true that the High Court had by an interlocutory  

order  directed  the  parties  to  maintain  status  quo,  but  

whether the said order had the effect of preventing the State  

Government from issuing a show cause notice was arguable.  

The issue of show cause notice did not  interfere  with the  

status  quo.  It  simply enabled  the  respondent-company to  

respond to the proposed action. Be that as it may, once the  

show cause notice was issued,  the High Court  could have  

directed the  respondent-company to  respond to the  same  

and disposed of the writ petition reserving liberty to it to take  

recourse  to  such  remedy  as  may  have  been  considered  

suitable  by  it  depending  upon  the  final  order  that  the  

Government passed on the said notice. What was significant  

was  that  the  respondent-company  had  not  assailed  the  

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validity of the show cause notice on the ground of jurisdiction  

or otherwise.  If the validity of the show cause notice was  

itself in question on the ground that the Government had no  

jurisdiction  to  issue  the  same,  nothing  prevented  the  

company from maintaining a writ petition and challenging the  

notice on that ground. The High Court would in that event  

have  had  an  opportunity  to  examine  the  validity  of  the  

notice.  In the absence of any such challenge the High Court  

could not simply ignore the notice even if it was issued in  

breach of the order passed by the Court. It was one thing to  

prevent  further  steps  being  taken  pursuant  to  the  notice  

issued by the Government but an entirely different thing to  

consider the notice to be non est in the eye of law. The High  

Court could have taken the show cause notice as a reason to  

relegate the parties to a procedure which was just and fair  

and in which the respondent could urge all its contentions  

whether on facts or in law. Our answer to question No.2 is,  

therefore, in the negative.   

Regarding Question No.3

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17. Although it is not necessary for us now to examine the  

question of validity of the show cause notice as the same was  

not questioned before the High Court in the writ petition filed  

by the respondent-company, we may to the credit  of  Mr.  

Dwivedi,  learned  senior  counsel  appearing  for  the  

respondent-company,  mention  that  he  did  not  seriously  

challenge  the  validity  of  the  notice  on  the  ground  of  

jurisdiction.  Mr.  Dwivedi  fairly  conceded  that  the  State  

Government  could,  in  appropriate  situations,  exercise  the  

option  of  recalling  or  modifying  its  recommendations  but  

contended that the present case did not present a situation  

that could justify such a recall.   

18. We do not propose to make any comment or express  

any opinion to the merits of the show cause notice. So long  

as the notice is not without jurisdiction as indeed it does not  

appear to be so, the question whether the grounds taken in  

the same provide a good basis for proposed action can be left  

open for the Government to decide. All that we need say is  

that  learned  counsel  for  the  parties  made  detailed  

submissions in regard to the grounds given in the notice and  

the validity thereof from their respective points of view and  

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in  support  of  their  respective  versions.  Some  of  these  

grounds and submissions were quite attractive also. But so  

long  as  the  matter  is  yet  to  be  examined  by  the  State  

Government,  we  consider  it  unnecessary  to  prejudice  the  

issues or express any opinion about the merits of the said  

contentions on either side. The proper course, in our opinion,  

would be to leave the contentions available to the parties  

open  for  being determined by competent  authority  in  the  

Government who would, in our opinion, do well to carefully  

consider the reply which the respondent may submit to the  

said show cause notice and pass a reasoned order on the  

subject. Question No.3 is answered accordingly.   

19. In  the  result  we  allow  this  appeal,  set  aside  the  

judgment and order passed by the High Court and direct that  

the respondent-company shall submit its reply to the show  

cause notice dated 6th February, 2007 issued by the State  

Government  within  three  months  from  today.  The  

Government  may then  upon consideration of  the  reply so  

submitted pass a reasoned order on the subject within two  

months thereafter under intimation to the respondent.  If the  

order so made is, for any reason found to be unacceptable by  

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the  respondent-company,  it  shall  have  the  liberty  to  take  

recourse to appropriate  proceedings before an appropriate  

forum in accordance with law.  

20. Parties are left to bear their own costs.  

                                     ……………………………..…J.     (T.S. Thakur)

        ..…………………………..…J. New Delhi           (Gyan Sudha Misra) March 6, 2013

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