Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4927 OF 2011 [Arising out of SLP [C] No.15621/2007]

State of Rajasthan & Anr. … Appellants

Vs.

J.K.Synthetics Ltd. & Anr. … Respondents

WITH

C.A. No. 4928 of 2011 (Arising out of SLP [C] No.15259/2007); C.A. No. 4929 of 2011 (Arising out of SLP [C] No.15260/2007); C.A. No. 4931 of 2011 (Arising out of SLP [C] No.15407/2007); C.A. No. 4930 of 2011 (Arising out of SLP [C] No.15873/2007), and C.A. No. 4932 of 2011 (Arising out of SLP [C] No.6417/2010).

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted.

2. In these appeals by special leave, the appellants challenge the orders  

of the Division Bench of the Rajasthan High Court, dismissing its appeals  

against a common order of the learned Single Judge, restricting the interest  

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on  arrears  of  royalty  to  12%  per  annum,  instead  of  24%  per  annum  

demanded by the State of Rajasthan.  

3. The first respondent in each of these appeals is or was the holder of a  

mining  lease  for  limestone.  Section  9  of  the  Mines  and  Minerals  

(Development  and  Regulation)  Act,  1957  (‘Act’  for  short)  deals  with  

Royalties in respect of mining leases. Sub-section (2) thereof requires the  

holder of a mining lease  to pay royalty in respect of any mineral removed or  

consumed  by  him  from  the  leased  area  at  the  rate  for  the  time  being  

specified in the Second Schedule to the Act, in respect of that mineral. Sub-

section  (3)  thereof  empowers  the  Central  Government,  by  notification  

published in the official  gazette,  to amend the Second Schedule so as to  

enhance the rates at which royalty shall be payable in respect of any mineral  

with effect from such date as may be specified in the notification.  

4. By notification dated 5.5.1987, the Central Government had amended  

the  Second  Schedule  to  the  Act  and  increased  the  royalty  in  respect  of  

(limestone) from Rs.4.50 per tonne to Rs.10 per tonne. By  a subsequent  

notification  dated  17.2.1992,  the  Second  Schedule  to  the  Act  was  again  

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amended and the rate or royalty for limestone was increased from Rs.10/-  

per tonne to Rs.25/- per tonne.  

5. The respective first respondent in these appeals (together referred to  

the  ‘contesting  respondents’)  filed  writ  petitions  challenging  the  

constitutional validity of section 9(3) of the Act and the notification dated  

17.2.1992 increasing the rate of royalty from Rs.10 to Rs.25 per tonne. In all  

the cases (except in the case of J. K. Udaipur Udyog Ltd), the High Court  

issued interim orders  directing the  state  government  not  to take coercive  

steps to recover royalty at the rate of Rs.25 per metric tonne in pursuance of  

notification dated 17.2.1992, subject to the writ petitioners paying royalty at  

the rate of Rs.10 per MT and furnishing bank guarantee for the difference of  

Rs.15 per MT. In the case of J. K. Udaipur Udyog Ltd, the High Court made  

an interim order as in the other cases, with an additional condition that in  

case  the  said  writ  petitioner  ultimately  failed  in  the  writ  petition,  the   

difference  amount  due  from  the  writ  petitioner  shall  be  recovered  with   

interest at the rate of 18% per annum.  

6. Ultimately,  the  several  writ  petitions  filed  by  the  contesting  

respondents challenging the section 9(3) of the Act and the notification dated  

17.2.1992 increasing the royalty, were dismissed in the year 1996 following  

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the decision of this Court in State of Madhya Pradesh vs. Mahalaxmi Fabric   

Mills  Ltd.,– 1995 Supp (1)  SCC 642, wherein this  Court  had upheld the  

validity of section 9(3) of the Act and the notification revising the rate of  

royalty.  As  a  consequence  of  such  dismissal,  each  of  the  contesting  

respondents claims to have paid the difference in royalty (that is at the rate  

of Rs.15/-  per MT) in the years 1996-1997.  

7. Rule 64-A of the Minerals Concession Rules, 1960 (‘Rules’ for short)  

provides for levy of interest on arrears of royalty and other dues and the  

same is extracted below :  

“64-A. The State Government may, without prejudice to the provisions  contained in the Act or any other rule in these rules, charge simple interest  at the rate of 24% per annum on any rent, royalty or fee, other than the fee  payable  under  sub-rule  (1)  of  Rule  54,  or  other  sum  due  to  that  government under the Act or these rules or under the terms and conditions  of any prospecting licence or mining lease from the sixtieth day of the  expiry of the date fixed by that government for payment of such royalty,  rent, fee or other sum and until payment of such royalty, rent, fee or other  sum is made.”  

8. The State  of Rajasthan issued the following demand notices  to the  

contesting respondents calling upon them to pay interest at the rate of 24%  

per annum under Rule 64-A of the Rules, on the difference in royalty which  

had been withheld on account of the interim orders obtained by them and  

which were belatedly paid, after rejection of their writ petitions :  

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SNo. Name of Lessee Writ  Petition  Number (where stay  was obtained)

Interest  Demanded (in Rupees)

Date of Demand

1. J. K. Synthetic Ltd WP No. 5721/1992. 6,98,54,031 6.11.1997 2. Birla Corporation Ltd. WP No. 6008/1992 5,99,81,784 24.7.1997 3. J. K. Udaipur Udyog Ltd. WP No. 3871/1993 1,12,76,364 12.3.1997 4. J. K. Synthetic Ltd WP No. 5300/1992. 20,04,474 24.7.1997 5. J. K. Corporation Ltd WP No. 5202/1992. 1,83,10,418 4.11.1996 6. Shree Cement Ltd. WP No. 5004/1992 2,91,89,622 21.1.1997

9. The contesting respondents at this stage again filed a second round of  

writ  petitions challenging the notices  demanding interest,  contending that  

they were not liable to pay interest. They also challenged the validity of Rule  

64-A of the Rules.  During the pendency of those petitions,  this  Court  in  

South Eastern Coalfields Ltd. vs. State of M.P. – 2003 (8) SCC 648, upheld  

the  validity  of  Rule  64A. On the  peculiar  facts  of  that  case  which  were  

noticed in  para  30 of  the  said  judgment,  this  Court  held  that  it  will  not  

interfere, in exercise of the jurisdiction under Article 136 of the Constitution  

of India, the discretion exercised by the High Court in reducing the rate of  

interest from 24% per annum to 12% per annum making it clear that the  

same shall not however be treated as precedent in any other case. After the  

said decision,  what remained to be considered in the writ petitions filed by  

the  contesting  respondent  was  the  rate  of  interest.  The  contesting  

respondents  as writ  petitioners  submitted before the learned Single Judge  

that  the  claim  for  interest  at  24%  per  annum was  harsh,  excessive  and  

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inequitable, and interest should not be charged at a rate higher than 9% per  

annum. They relied upon the decision of this court in  Saurashtra Cement  

and Chemical Industries Ltd., vs. Union of India – 2001 (1) SCC 91, where  

this court had reduced the rate of interest on unpaid royalty imposed by the  

High Court (18% per annum) to 9% per annum. The learned Single Judge  

allowed  the  writ  petitions  of  the  six  contesting  respondents  in  part,  by  

common order dated 11.8.2005. He noted that the Advocate General had  

submitted  that  the  State  Government  was  entitled  to  interest  at  18% per  

annum. The learned Single Judge noted that the trend of directions by the  

Supreme Court showed that State should get interest at least at the rate of  

12% per  annum on  the  delayed  payments.  Consequently,  he  upheld  the  

demand for interest only to an extent of 12% per annum and set aside the  

demand  for  the  interest  at  the  higher  rate  of  24%  per  annum,  with  a  

condition that if interest at 12% per annum on the delayed payments was not  

paid within three months, the respective writ petitioners shall be liable to  

pay interest at 24% per annum. It is stated by the contesting respondents that  

all  of  them have  paid  the  interest  at  the  rate  of  12% per  annum on the  

delayed payments, within three months period. Be that as it may.  

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10. The state government filed intra-court appeals challenging the order  

of  the  learned  Single  Judge.  A  Division  Bench  of  the  High  Court  has  

dismissed  those  appeals  by  the  impugned  orders  dated  14.11.2009,  

13.11.2006,  13.11.2006,  13.3.2007,  14.11.2006  and  4.11.2009,  on  the  

ground  that  the  order  of  the  learned  Single  Judge  was  based  on  an  

admission/concession by the learned Advocate General  and therefore,  the  

order did not call for interference. The said orders are challenged in these  

appeals by special leave by the state government.   

11. On  the  contentions  raised,  the  following  questions  arise  for  

consideration :  

(i) Whether the Advocate General appearing for the State had consented  to award of interest at 12% per annum?

(ii) When the High Court grants an interim stay of a demand for payment  of  money,  in  a  writ  petition  challenging  the  levy  which  is  ultimately  dismissed, without any specific direction for payment of interest, whether  the respondent can claim interest on the amount due for the period covered  by the interim order?  

(iii) Whether Rule 64-A vests any discretion in the state government to  charge interest at a rate less than 24% per annum in appropriate or deserving  cases?  

(iv) Whether the rate of interest awarded at 12% per annum requires to be  increased?

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Re : Question (i)

12. The first question is whether the order of the learned Single Judge is  

based on any consent and whether the learned Advocate General appearing  

for the state had conceded that the state government is entitled to interest at  

only 12% per annum. We extract below the relevant portion of the order of  

the learned Single Judge, where there is a reference to the submission made  

of the learned Advocate General :  

“On the other hand, the learned Advocate General submits that the state  government is entitled for the rate of interest @ 18% per annum but even  looking to the present trend of Hon’ble Supreme Court, Government must  at  least  get  interest  @12% per  annum on the  delayed  payment  of  the  difference royalty amount as has been awarded by the Hon’ble Supreme  Court in South Easter Coalfields case (supra).  

Having heard the learned (counsel) for the parties, I am of the view that in  the facts and circumstances of the present case, the demand of interest @  12% per annum would meet the ends of justice in the light of the Apex  Court judgement in South Eastern Coalfields case (supra).”  

The only  submission  of  the  Advocate  General  before  the  learned  Single  

Judge was that the State Government was entitled to interest at the rate of  

18% per annum. The further observation that as per the trend of Supreme  

Court decision, the state government should get interest at least at the rate of  

12% per annum on the delayed payments,  as  awarded in the decision in  

South Eastern Coalfields, is an observation of the learned Single Judge, and  

not a concession by the learned Advocate General. Further, subsequent para  

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of the order of the learned Single Judge makes it clear beyond doubt that the  

order was not on consent or concession, but is made on merits following the  

decision  of  this  Court  in  South  Eastern  Coalfields.  Therefore,  the  

assumption  by  the  Division  Bench  of  the  High  Court  that  the  learned  

Advocate General had made a concession and the order of the learned Single  

Judge  was  a  consent  order  and  therefore,  it  was  not  open  for  the  State  

Government to challenge the order of the learned Single Judge, is obviously  

erroneous. The order of the Division Bench cannot therefore be sustained.  

13. Even if it is assumed that the learned Advocate General had submitted  

that  “looking  to  the  present  trend  of  the  decision  of  Supreme  Court”,  

Government should at least get interest at the rate 12% per annum on the  

delayed payment of difference in royalty amount as had been awarded in  

South  Eastern  Coalfields,  that  would  neither  be  an  admission  nor  a  

concession that the state government is entitled to interest only at the rate of  

12% per annum in regard to the rate of interest. It would be nothing more  

than  a  statement  made  with  reference  to  the  decision  in  South  Eastern  

Coalfields and such a statement would not come in the way of order being  

challenged if the state government is of the view that it is entitled to get a  

higher rate of interest.  

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Re : Question (ii)

14. The contesting respondents filed the second round of writ  petitions  

before the High Court challenging the demand for interest and the validity of  

Rule 64A, on two grounds :  that Rule 64-A was invalid; that the rate of  

interest  was  excessive.  The  learned  Single  Judge  negatived  the  first  

contention  in  view of  the  decision  of  this  South  Eastern  Coalfields.  He  

however accepted the second contention and restricted the rate of interest to  

12% per annum. The contesting respondents have not challenged the order  

of the High Court holding that they are liable to pay interest  at  12% per  

annum. They have in fact paid the interest at such rate. Before us, one of the  

contentions urged to resist the claim of the State for increase in the rate of  

interest,  is  with  reference  to  the  fundamental  question about  the  liability  

itself.  It  was  submitted  that  they  were  not  liable  to  pay  interest  on  the  

increase in royalty amount, in view of their challenge to the increase and  

order of interim stay of the High Court. It was submitted by the contesting  

respondents, that even if the writ petitions challenging the notification dated  

17.2.1992 revising the royalty rate were ultimately dismissed, in the absence  

of any specific direction by the High Court to pay interest on the difference  

in royalty amount, they were not liable to pay any interest during the period  

of operation of stay. This question is no longer res integra. We may refer to  

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the  decisions  of  this  Court  that  have  categorically  laid  down  about  the  

liability to pay interest  for the period of stay when the stay is ultimately  

vacated.   

15. In  Kanoria  Chemicals  and Industries  Ltd.  vs.  UP State  Electricity   

Board –  1997  (5)  SCC  772,   this  Court  held  that  grant  of  stay  of  a  

notification  revising  the  electricity  charges  does  not  have  the  effect  of  

relieving  the  consumer  of  its  obligation  to  pay interest  (or  late  payment  

surcharge) on the amount withheld by them by reason of the interim stay, if  

and when the writ petitions are dismissed ultimately. The said principle was  

based on the following reasoning :  

“Holding  otherwise  would  mean  that  even  though  the  Electricity  Board,  which  was  the  respondent  in  the  writ  petitions  succeeded  therein, is yet deprived of the late payment surcharge which is due to  it  under  the  tariff  rules/regulations.  It  would  be  a  case  where  the  Board suffers prejudice on account of the orders of the court and for  no  fault  of  its.  It  succeeds  in  the  writ  petition  and  yet  loses.  The  consumer  files  the  writ  petition,  obtains  stay  of  operation  of  the  Notification revising the rates and fails in his attack upon the validity  of the Notification and yet he is relieved of the obligation to pay the  late payment surcharge for the period of stay, which he is liable to pay  according  to  the  statutory  terms  and conditions  of  supply  -  which  terms  and  conditions  indeed  form  part  of  the  contract  of  supply  entered into by him with the Board. We do not think that any such  unfair and inequitable proposition can be sustained in law…….

It is equally well settled that an order of stay granted pending disposal of a  writ petition/suit or other proceeding comes to an end with the dismissal of  the substantive proceeding and that it is the duty of the court in such a case  to put the parties in the same position they would have been but for the  interim orders of the court. Any other view would result in the act or order  of the court prejudicing a party (Board in this case) for no fault of its and  

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would also mean rewarding a writ petitioner in spite of his failure. We do  not think that any such unjust consequence can be countenanced by the  courts.  As  a  matter  of  fact,  the  contention  of  the  consumers  herein,  extended logically should mean that even the enhanced rates are also not  payable for the period covered by the order of stay because the operation  of  the  very  notification  revising/enhancing  the  tariff  rates  was  stayed.  Mercifully,  no  such  argument  was  urged  by  the  appellants.  It  is  ununderstandable how the enhanced rates can be said to be payable but not  the late payment surcharge thereon, when both the enhancement and the  late  payment  surcharge  are  provided  by  the  same  Notification  -  the  operation of which was stayed.”

(emphasis supplied)

The above principles  have been followed and reiterated  by this  Court  in  

Rajasthan Housing Board vs. Krishna Kumari – 2005 (13) SCC 151 and  

Nav  Bharat  Ferro  Allays  Ltd  vs.  Transmission  Corporation  of   Andhra   

Pradesh Ltd – 2011 (1) SCC 216.  

16. The same question was considered by this Court, when examining the  

constitutional validity of Rule 64-A in South Eastern Coalfields. This Court  

held that Rule 64-A providing for payment of interest at the rate of 24% per  

annum, was valid. In that case also, it was contended before this Court that  

non-payment  of  the  increased  amount  of  royalty  was  protected  by  the  

interim orders of the High Court and therefore, they should not be held liable  

for  payment  of  interest  so  long  as  the  money  was  withheld  under  the  

protective  umbrella  of  the  interim  orders.  It  was  further  contended  that  

merely because the writ petition was finally dismissed, it does not follow  

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that  the interim order  becomes vitiated or erroneous,  as it  may still  be a  

perfectly justified interim order. It was further argued that as they had shown  

their  bona fides by paying the difference in royalty immediately after the  

validity of the notification dated 17.2.1992 was upheld, they could not be  

made liable to pay interest. All these contentions were rejected by this Court  

on the ground that the principle of restitution was a complete answer to the  

said submissions. This Court held :  

“The principle of restitution has been statutorily recognized in Section 144  of the Code of Civil Procedure, 1908. Section 144 of the CPC speaks not  only of a decree being varied,  reversed,  set  aside or modified but also  includes an order on par with a decree. The scope of the provision is wide  enough so as to include therein almost all the kinds of variation, reversal,  setting aside or modification of a decree or order. The interim order passed  by the Court merges into a final decision. The validity of an interim order,  passed in favour of a party, stands reversed in the event of final decision  going against the party successful at the interim stage. Unless otherwise  ordered by the Court, the successful party at the end would be justified  with all expediency in demanding compensation and being placed in the  same situation in which it would have been if the interim order would not  have  been  passed  against  it.  The  successful  party  can  demand  (a)  the  delivery of benefit earned by the opposite party under the interim order of  the court, or (b) to make restitution for what it has lost; and it is the duty of  the court to do so unless it feels that in the facts and on the circumstances  of the case,  the restitution would far from meeting the ends of justice,  would rather defeat the same. Undoing the effect of an interim order by  resorting to principles of restitution is an obligation of the party, who has  gained by the interim order of the Court, so as to wipe out the effect of the  interim order passed which, in view of the reasoning adopted by the court  at the stage of final decision, the court earlier would not or ought not to  have passed. There is nothing, wrong in an effort being made to restore the  parties to the same position in which they would have been if the interim  order would not have existed.”

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17. It is therefore evident that whenever there is an interim order of stay  

in regard to any revision in rate or tariff, unless the order granting interim  

stay or the final order dismissing the writ petition specifies otherwise, on the  

dismissal of the writ petition or vacation of the interim order, the beneficiary  

of the interim order shall have to pay interest on the amount withheld or not  

paid by virtue of the interim order. Where the statute or contract specifies  

the rate of interest, usually interest will have to be paid at such rate. Even  

where there is no statutory or contractual provision for payment of interest,  

the court will have to direct the payment of interest at a reasonable rate, by  

way of restitution, while vacating the order of interim stay, or dismissing the  

writ petition, unless there are special reasons for not doing so. Any other  

interpretation would encourage unscrupulous debtors to file writ  petitions  

challenging the revision in tariffs/rates and make attempts to obtain interim  

orders of stay. If the obligation to make restitution by paying appropriate  

interest on the withheld amount is not strictly enforced, the loser will end up  

with a financial benefit by resorting to unjust litigation and winner will end  

up as the loser financially for no fault of his. Be that as it may.   

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Re : Question (iii)

18. The contesting respondents contended that Rule 64A provides that the  

state  government  “may”  charge  simple  interest  at  the  rate  of  24%  per  

annum;  that  this  being  an  enabling  provision,  there  is  no  ‘mandate’  or  

compulsion to charge interest at 24% per annum; and that therefore, the state  

government has the discretion to charge interest at a rate lesser than 24% in  

appropriate deserving cases. It is submitted that if the legislative intent was  

to provide for interest at the rate of 24% per annum in all cases of delayed  

payment of royalty/rent/fees without exception, the rule would have been  

differently worded, and read as follows : “wherever any rent, royalty or fee  

or other sum due to the government under the Act or the rules or under any  

prospecting licence or mining lease, is not paid by the due date, the lessee or  

licensee shall pay interest on the delayed payment at the rate of 24% per  

annum”. It is submitted by the respondents that the word “may” used in the  

Rule,  should be read as vesting a discretion in the government to charge  

interest or not to charge interest, and if interest is to be charged, at any rate  

not exceeding 24% per annum.  

19. A careful reading of the Rules makes it clear that no such discretion is  

given  to  the  state  government  in  regard  to  rate  of  interest.  This  will  be  

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evident from a combined reading of Rules 31 and 27 and the terms of the  

statutory form of lease deed (Form K), with Rule 64A. Rule 31 provides that  

where, an order has been made for the grant of a mining lease, a lease deed  

in Form K (or in a form as near thereto as circumstances of each case may  

require), shall be executed. Rule 27 specifies that every mining lease shall be  

subject to the conditions mentioned therein. Clause (5) of Rule 27 refers to  

determination :  

“(5). If  the  lessee  makes  any  default  in  the  payment  of  royalty  as  required under section 9 or payment of dead rent as required under section  9A or commits a breach of any of the conditions specified in sub-rules (1),  (2) and (3), except the condition referred to in clause (f) of sub-rule (1),  the state government shall give notice to the lessee requiring him to pay  the royalty or dead rent or remedy the breach, as the case may be, within  sixty days from the date of the receipt of the notice and if the royalty or  dead rent is not paid or the breach is not remedied within the said period,  the state government may, without prejudice to any other proceedings that  may be taken against him, determine the lease and forfeit the whole or part  of the security deposit.”

The above provision is accordingly incorporated in clause (2) of Part IX of  

the standard form of lease (Form K).  

20. The rate of interest at 24% was substituted in     clause (3) of Part VI  

of  the  standard  form  of  lease,  by  the  very  same  amendment  which  

substituted  the  said percentage in  Rule 64A namely,  GSR 129 (E) dated  

20.2.1991. The words “may charge simple interest” in Rule 64A should be  

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read in the context of the words “without prejudice to the provisions of the  

Act  or  any  other  Rule  in  these  Rules”.  As  noticed  above,  Rule  45(iv)  

requires the lease deed to contain a condition that if there is any default in  

the payment of royalty, the lessor without prejudice to any proceeding that  

may be taken against the lessee, determine the lease. Therefore, the word  

“may” used with reference to the words “charge simple interest at the rate of  

24%  per  annum”  when  read  with  the  words  “without  prejudice  to  the  

provisions contained in the Act or any other Rule”, occurring in Rule 64A,  

make  it  clear  that  whenever  rent/royalty/fee  becomes due,  the  lessor  has  

several options by way of remedy. The lessor may determine the lease, if the  

breach is not rectified, even after sixty days’ notice to rectify the breach.  

Alternatively, instead of determining the lease, the rule gives the choice to  

charge interest at 24% per annum on the amounts due. The third alternative  

for the state government is to determine the lease and also charge interest at  

24% per annum on the outstanding dues. The word ‘may’ is used in Rule 64-

A not in the context of giving discretion in regard to rate of interest to be  

charged,  but  to  give  an  option  or  choice  to  the  State  Government  as  to  

whether it should determine the lease, or charge interest at 24% per annum,  

or do both. Therefore, where the lease is not determined as a consequence of  

the default, the State will have to charge interest at 24% per annum on the  

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outstanding  amount.  If  Rule  64A  is  to  be  interpreted  as  giving  any  

discretion, that too unguided discretion, to the authorities to charge any rate  

of interest, as it would result in misuse and abuse. In this view of the matter,  

the contentions urged by the parties as to whether the word “may” should be  

read as “must” or “shall”, and, if so, in what circumstances, do not arise for  

consideration at all.  

21. There is also other material in the Rules itself to show that the rate of  

interest mentioned in Rule 64A was not intended to be flexible and that the  

rate  of  interest  mentioned  therein  has  to  be applied  in  all  cases  of  non-

payment/default.  When  Rule  64A  was  amended  by  notification  dated  

20.2.1991, increasing the rate of interest to 24% per annum, clause (3) of  

Part IV of the standard form of lease (Form K) was also amended increasing  

the rate of interest payable on all dues as 24% per annum. We extract below  

clause (3) of Part VI of Form K for ready reference :  

“3. Should any rent, royalty or other sums due to the State Government  under  the  terms  and  conditions  of  these  presents  be  not  paid  by  the  lessee/lessees within the prescribed time, the same, together with simple  interest due thereon at the rate of twenty four per cent per annum may be  recovered on a certificate of such officer as may be specified by the State  Government by general or special order, in the same manner as an arrears  of land revenue.”

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The said clause in Form K makes it clear that the rate of interest should be  

24% per annum and there is no discretions in the state government to charge  

interest at any lesser rate.  

22. It  is  true  that  annual  interest  at  24%  per  annum  appears  to  be  

marginally higher than the standard market lending rate of interest. But it is  

not  penal  in  nature.  Revenue  from mining  constitutes  one  of  the  major  

sources of non-tax revenue of the State Governments.  Mining lessees are  

expected to pay the mining dues promptly and without default. If a lesser  

rate  of interest  is  provided under the Rules,  it  may lead to unscrupulous  

lessees  indulging  in  delaying  tactics.  The  intention  of  Rule  64A  is  to  

discourage  practices  that  may  be  detrimental  to  recovery  of  revenue,  by  

providing for a higher rate of interest. Hence, once the State Government  

chooses not to take the path of determining the lease, charging of interest at  

24% is  mandatory  and  leaves  no  discretion  in  the  State  Government  in  

regard to rate of interest.

Re : Question (iv)  

23. This brings us to the last question as to what should be the rate of  

interest. We have seen that Rule 64-A categorically provides that where a  

mining lessee who is liable to pay rent or any other dues, fails to pay the  

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same, the state government will be entitled to charge simple interest thereon  

at 24% per annum. The validity of this rule has been upheld by this Court in  

South Eastern Coalfields. Therefore interest on all delayed payments should  

be 24% per annum.  

24. The contesting respondents submitted that even if the rate of interest  

under  Rule  64-A  is  24%  per  annum,  when  the  liability  (on  account  of  

increase in Royalty) is under challenge and the matter is pending in court  

and there is an interim stay of the increase, the liability to pay interest will  

be within the discretion of the court and court can award a lesser rate. They  

relied upon the decisions of this Court in Saurashtra Cement (supra) and the  

decision in  South Eastern Coalfields, that the interest should not be more  

than 9% or 12% per annum, for the period when the stay was in operation.  

25. In South Eastern Coalfields which upheld the validity of Rule 64-A,  

this Court did not interfere with the decision of the High Court awarding  

interest at 12% per annum, on the following reasoning :  

“So  far  as  the  appeal  filed  by  the  State  of  Madhya  Pradesh  seeking  substitution of rate  of interest  by 24% per annum in place of 12% per  annum as awarded by the High Court is concerned, we are not inclined to  grant that relief in exercise of our discretionary jurisdiction under Article  136 of the Constitution especially in view of the opinion formed by the  High Court in the impugned decision. The litigation has lasted for a long  

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period of  time.  Multiple  commercial  transactions  have taken place  and  much time  has  been lost  in  between.  The commercial  rates  of  interest  (including bank rates) have undergone substantial variations and for quite  sometime the bank rate of interest has been below 12%. The High Court  has, therefore, rightly (and reasonably) opined that upholding entitlement  to payment of interest at the rate of 24% per annum would be excessive  and it would meet the ends of justice if the rate of interest is reduced from  24% per annum to 12% per annum on the facts and in the circumstances of  the case. We are not inclined to interfere with that view of the High Court  but make it clear that this concession is confined to the facts of this case   and to the parties herein and shall not be construed as a precedent for   overriding Rule 64A of  the Mineral  Concession Rules,  1960. It  is  also  clarified that the payment of dues should be cleared within six weeks from  today (if not already cleared) to get the benefit of reduced rate of interest  of 12%; failing the payment in six weeks from today the liability to pay  interest @24% per annum shall stand.”

(emphasis supplied)

Therefore, it is clear that the concession extended in that case by permitting  

interest only at 12% per annum was confined to the facts of that case and to  

the  parties  therein  and is  not  be treated as  a precedent,  for  nullifying  or  

overriding Rule 64-A of the Rules.  

26. In  Saurashtra Cement, while dismissing the appeals challenging the  

validity  of  the  increase  in  royalty  following  the  decision  in  Mahalaxmi  

Fabric Mills (Supra), this Court dealt with a case, where the High Court had  

granted  interim stay  of  the  notification  regarding  increase  in  royalty  but  

however  while  vacating  the  interim  order  and  discharging  the  rule,  had  

directed the payment of interest at 18% per annum. Pattanaik J., (as he then  

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was) in the last line of his order reduced the rate of interest to 9% per annum  

without  assigning  any  specific  reason,  except  observing  that  18%  was  

unreasonable. In his concurring judgment, Banerjee J., observed as under :  

“The imposition of 18% interest with yearly rests cannot in our view find  support in the contextual facts since the validity of the legislation itself is   in  question  before  this  Court.  The  payment  of  interest  being  in  the   discretion of the court,  we, therefore, do not wish to interfere with the  award of interest, as such though the rate at which it has been awarded  needs some modification in the contextual facts and as such we direct that  the rate of interest be 9% simple interest and not as directed by the High  Court.”

(emphasis supplied)

A careful reading of the said judgment shows that while deciding the issue  

of  interest,  this  Court   had  overlooked  Rule  64-A  which  is  a  statutory  

provision entitling the government to claim interest at 24% per annum. This  

Court  apparently  proceeded  on  the  basis  that  there  was  no  statutory  or  

contractual provision for the payment of interest, and therefore, question of  

interest was wholly within the discretion of the court.  Therefore, the said  

decision may not also be of any assistance.  

27. We  find  that  the  decision  in  Kanoria  Chemicals  (supra) throws  

considerable light on the logic behind court’s discretion in awarding interest  

in such cases. That case, as noticed earlier, dealt with increase in electricity  

charges.  The  relevant  provision  specifically  provided  that  in  regard  to  

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delayed payments of the bills, the consumer shall pay additional charge per  

day of seven paisa per hundred rupees on the unpaid amount of the bill,  

which works out to 25.55% per annum. This Court reduced the same to 18%  

per annum on the following reasoning :  

“Sri  Vaidyanathan  then  contended  that  the  rate  of  “late  payment  surcharge” provided by clause 7(b) is really penal in nature inasmuch as it  works out to 25.5 per cent per annum. The learned counsel also submitted  that the petitioners understood the decision in Adoni Ginning as relieving  them of  their  obligation  to  pay interest  for  the  period  covered  by  the  interim order and that since they were acting bona fide they should not be  mulcted with such high rate of interest. We cannot agree that the rate of  late  payment  surcharge   provided  by  clause  7(b)  is  penal,  but  having  regard to the particular facts and circumstances of this case and having  regard  to  the  fact  that  petitioners  could  possibly  have  understood  the  decision in Adoni  Ginning as relieving them of their obligation to pay   interest/late payment surcharge for the period of stay, we reduce the rate  of late payment surcharge payable under clause 7(b) to eighteen per cent.  But this direction is confined only to the period covered by the stay orders  in  writ  petitions  filed  challenging  the  notification  dated 21.4.1990 and  limited  to  1.3.1993  the  date  on  which  those  writ  petitions   were  dismissed.”  

(emphasis supplied)

Therefore,  whenever  there  is  a  challenge  to  a  levy  or  challenge  to  an  

increase in the tariff or rates, and an order of interim stay of recovery is  

made in the said writ proceedings and the writ petition is ultimately rejected,  

the court should invariably award interest by way of restitution. Where the  

statute  or  contract  prescribed  a  specific  rate  of  interest,  the  court  should  

normally adopt such rate while awarding interest,  except where the court  

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proposes  to  award  a  higher  or  lower  rate  of  interest,  for  special  and  

exceptional reasons.  

28. Let  us  consider  whether  there  are  any  special  or  exceptional  

circumstances for reducing the statutory interest in this case. In the case of  

one of the contesting respondents (J. K. Udaipur Udyog Ltd.), there was a  

categorical direction while granting interim stay that in the event of failure  

in the writ petition the writ petitioner will have to pay interest at the rate of  

18% per annum. That was a condition of interim order and therefore, it is  

possible that the parties bona fide proceeded on the basis that interest will be  

only 18% per annum. In the writ petitions of other contesting respondents,  

there was no such condition regarding interest while granting the stay. But  

as  pointed  out  in  Kanoria  Chemicals,  it  is  possible  that  the  contesting  

respondents thought, by reason of the fact that there was no condition for  

payment of interest while granting stay, they may not be required to pay the  

statutory rate of interest.  More importantly, the learned Advocate General  

appearing for the State had made a submission before the learned Single  

Judge that state government was entitled to interest only at the rate of 18%  

per annum. In the peculiar and special circumstances of these cases, we are  

of the view that the appellants will be entitled to interest at 18% per annum  

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in respect  of royalty that became due between 17.2.1992 and the date of  

dismissal of their respective writ petitions. For the period subsequent to the  

dismissal of the writ petitions, the contesting respondents will be liable to  

pay interest on the said amount, at the rate of 24% per annum till date of  

payment.  

29. The contesting respondent in the last case (Shree Cement) raised an  

additional contention. It was submitted that clause VI(iii) of the Lease Deed  

in  its  case  provided  that  any  royalty  which  was  not  paid  within  the  

prescribed time shall  be paid with simple  interest  at  the rate of 10% per  

annum. It is therefore contended that the interest on any arrears cannot be  

more than 10% per annum in its case. The lease is governed by the Minerals  

and Concessions Rules 1960 and execution of the lease deed is itself is in  

compliance with one of the requirement of the rules, namely Rule 31. Once  

Rule 64A was amended by notification dated 20.2.1991 increasing the rate  

of interest to 24% per annum, any term in the lease deed prescribing a lesser  

rate of interest, shall have to yield to Rule 64-A from that date as the rule  

will prevail over the terms of the lease. This position is evident from the  

decision in South-Eastern Coalfields  also.  

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Conclusion  

30. In view of the above, we allow these appeals in part and modify the  

rate of interest in each case as under :

(i) from 17.2.1992 to the date  of dismissal of the respective writ petition  

(challenging the notification dated 17.2.1992), the rate of interest shall be  

18% per annum on the arrears of royalty etc.; and

(ii) from the date of dismissal of the writ petition till date of payment, the  

rate of interest shall be 24% per annum.  

……………………………J. (R V Raveendran)

…………………………..J. (P. Sathasivam)

New Delhi; ………………………..J. July 4, 2011. (A.K. Patnaik)

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