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Understanding The Concept Of Preferential Right To Mine

On a plain reading of the phrase, it is made clear that this concept relates to a right of preference to be given to someone interested in mining. Now, looking at the phrase closely brings out many other concepts of understanding which gel together to grant this preferential right. A preferential right is where the Government has this power to give preference to a particular applicant in cases where there are multiple applicants for a specific mining lease.

As per the Indian scenario, there is a preferential right to mine given to certain persons according to the Mines and Minerals (regulation and Development) Act, 1957[Hereinafter referred to as MMDR Act] in the form of Section 11. From a reading of Section 11, it appears that a fresh mining lease will be granted to the applicant to whom a prospecting license was also granted previously regarding the same land.

The State Government will grant the license after making sure that the following conditions are fulfilled[1]:
  1. The licensee has undertaken prospecting operation to establish mineral resources in such land;
  2. The licensee has not committed any breach of terms and conditions of the prospecting license;
  3. The licensee is, otherwise, a fit person for being granted the mining lease.

In other cases, the person who applies first is supposed to be given a preference over all those who apply later. In such instances, the exclusive power is given to the State Government to decide about the grant of mining lease and the Central Government has no say. In the case of M.P. Mineral Supply Company v. Government of India[2], when the Central Government remanded the matter to consider all applications afresh, no reasons were assigned by the State Government nor any order indicated about the considering relative merits of the applicants on approval of Central Government except reiteration of preferential claim possessed as indicated in Section 11(3)[3].

This shows that in no situation can the Central Governmentís prior approval be binding upon the State Government[4]. However, an approval of Central Government is required to be taken by the applicant when the proposed preference is overlooked by the State Government.

In terms of Section 11 of the MMDR Act, although a holder of an RP or a PL has a preferential right to obtain a PL or an ML, as the case may be, where two or more persons have applied for an RP, PL or ML, the applicant whose application was received first has a preferential right to be considered for grant of an RP, PL or ML, as the case may be, over an applicant whose application was received later[5].

Section 11(2) of the MMDR Act, 1957 specifically talks about the preferential right to mine on a first-come-first-serve basis. As a matter of proper understanding, Section 11 (2) of MMDR Act, 1957 can be split into two separate parts. The substantive part applies to non-notified areas where it states that where two or more persons have applied for a reconnaissance permit, prospecting license or mining lease in respect of a non-notified area, the earlier applicant will have a preferential right over the later applicant.[6]

In case of areas notified by the State Government where applications for reconnaissance permit, prospecting license or mining lease are submitted all the applications received during the period specified in such notification as well as the applications received prior to the publication of such notification shall be deemed to have been received on the same date.[7]

The second proviso to Section 11 (2) states that where any such applications are received on the same day meaning application that has been made under Section 11 (2) in respect of non-notified area and applications received on the same day in respect of notified area, then the State Government shall grant a license, to such one of the applicants as it may deem fit.[8]

Where applications are received on the same day, the State Government will take into consideration the following matters for grant of RP, PL or ML[9] respectively, as it deems fit:
  1. Special knowledge of RP, PL or ML;
  2. The financial resources of the applicant;
  3. The nature and quality of technical staff to be employed by the applicant;
  4. The investment which the applicant proposes to make in the mines and the industry based on the minerals; and
  5. Such other matters as may be prescribed.
However, as per the provision laid down in Section 11(5), the State Government has a full discretion to grant a lease to an applicant whose application was recieved later in preference on the basis of special reasons. A notification passed by the Central Government on February 9, 2010 stated the following as special reasons on the basis of whish State Government had the power to exercise its discretion[10]:
  1. Exhaustion of captive capacity
  2. Special Technology
  3. Ownership of the land of the recommended area
  4. Considering an adjoining area for mining in the interest of scientific and systematic mining and reduction in barrier laws; and
  5. MOU cases where a plant/industry has already been set up on the basis of an MOU but mineral concession not yet granted as per the MOU, provided that al such MOUs will be treated as a single class and the first in time within this class will be accorded the first right.

Section 11 of MMDR Act, 1957 is read with Rule 35 of Mineral Concession Rules, 1960 which specifically talks about preferential right to mine for certain persons and this rule also suggests the application of Section 11 along with the specifications mentioned therein.

End-Notes:
  1. Aruna Mehra v. State of Bihar, (1997) 2 BLJR 1576
  2. M.P. Mineral Supply Company v. Government of India, 2002 (4) MPLJ 60
  3. Id.
  4. D.D. Seth, Encyclopaedia of Mining Laws, Delhi Law House, 4th ed.
  5. Per Vestergaard Pedersen, Minerals and Mining, Globe Law and Business, 2012
  6. Real Ispat and Power Ltd. v. Union of India and Ors, W. P. (C) 4723/2010
  7. Id.
  8. Id.
  9. Laws Relating To Regulation And Grant Of Mineral Concessions For Prospecting, Development And Exploration Of Minerals, available at http://www.dmg-raj.org/docs/RTI_3.pdf
  10. No.2/4/2012-M.IV, available at http://mines.nic.in/writereaddata%5CContentlinks%5Ce831705fec3b470082e841fd3dff04ff.pdf
Written By:
  1. Dr Farrukh Khan is an Advocate and Managing Partner of Diwan Advocates. He is also special counsel for Govt of UP in Supreme Court. and
  2. Somya Mishra is an Advocate, working with Diwan Advocates.

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