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Case Study Title Orissa Manganese and Mineral Pvt Ltd Vs Adhunik Steel Ltd
Case Study Description

Orissa High court decision in legal matter of Orissa Manganese and Mineral Pvt. Ltd. Vs Adhunik Steel Ltd. AIR 2005 113 on termination of mining contract of leasehold land.

Case Study Details

The Orissa High Court in this case was hearing an appeal petition challenging injunction order granted by the District judge in favour of the Respondent in relation to the termination of agency by the appellant on the ground of a violation of Rule 37 (1) (b) of the Mineral Concession Rules 1960. The Respondent had made application under section 9 of the Arbitration and Conciliation Act, 1996 seeking restraint order against the Appellant from dispossessing the Respondent from the mines. The District judge had ordered in favour of respondent holding that Rule 37 of the Minerals Concession rules do not have any application to case. The district judge further held that the termination of above agreement on the above ground was not justified and respondent would suffer irreparable injury which shall not be able to be compensated in terms of money in case restraint order is not granted against Appellants.

The Mineral Concession Rules:

Rule 37 (1) (b) of the Mineral Concession Rules, 1960 states that any lessee shall not without the previous consent in writing of the state government or central government (as per the Schedule of the Mineral Concession Rules 1960) transfer or enter into any contract or understanding whereby the lessee operations or undertaking shall or may be substantially controlled by any person or body of persons other than lessee.

Thus, the law prohibits lessee from appointing any agency without the prior approval of the government.

The Respondent had sought specific performance of the contract that had been terminated by the Appellants. Section 14 (1) of the Specific Relief Act, 1963 provides for contracts that are not specifically enforceable by court. Section 14 (1) (c) of the Specific Relief Act, 1963 provides that when the contract, by its nature, is determinable then, such contract, cannot be specifically enforced.

Sub-section 3 to Section 14 provides exception to clause (a), (c) and (d) to sub-section 1 of section 14 and states that court may enforce specific performance of contract in the cases mentioned thereunder. Sub-clause (ii) to Clause (c) to subsection 3 to Section 14 i.e. Section 14 (3) (c) (ii) states as one of condition that court may enforce a contract for execution of any work on the land provided that the plaintiff has substantial interest in the performance of the contract and the interest is of such nature that compensation in terms of money for non-performance of contract is not adequate relief.

Facts of the case:

The Government of India granted a lease of a land in favour of the Appellant for undertaking mining operations. The Appellant due to combined factors of lack of resource, expertise and mounting cost entered into agreement dated 14.5.2003 with the respondent Company for carrying out mining operations. Under the agreement, the respondents were required to carry out mining operation on the aforesaid mines on exclusive basis and were required to excavate and remove manganese ore for and on behalf of the appellants and deliver the same to the customers of the appellants for ten years. The agreement further provided that the agreement shall be renewable further on the terms and conditions mutually agreeable between parties. The possession of the leasehold land was handed over to the respondent. The Agreement also had a termination clause providing for that either of parties can terminate the contract in case of non-compliance to any of terms and conditions of the contract by giving notice of 90 days for the same to remedy the said breach.

The agreement was given effect to the Appellant thereafter through a letter and notice in newspaper terminated the contract and revoked the power of Attorney citing that the agreement entered between the parties was in violation of Mineral Concession Rules 1960 and was illegal and void in nature and thereby liable to be terminated. The Appellant submitted that the agreement had been entered without seeking prior consent from concerned government. The Appellant further asked the respondent to stop any activity on the said land and asked them to leave the premises.

The appellant submitted that they had lost sight of the provision contained under Rue 37 and not sought any permission from the government and thereby agreement entered between the parties was void and illegal in nature. It is against this letter and notice, the respondent presented petition under section 9 of Indian arbitration act to the court seeking interim measures on account of presence of arbitration clause in the agreement.

Finding of the court

The Orissa High Court held that on the facts and circumstance of the case that there was no violation of Rule 37 of the Minerals Concession Rules 1960. The Court referring to the clauses of the agreement observed that under the agreement, the respondent had been engaged only as a raising contractor who were required to excavate or extract ore  for and on behalf of the appellants and deliver the same to customers of the appellants also on behalf of appellants. The Court further observed that the agreement also provided for payment to respondent in accordance to the quality of ore extracted by them. The court said that leasehold land thus remained with the appellant and only possession of the same was provided to the respondent for undertaking mining activity.

The Court said that thence entire control of the leasehold land was in the hands of the appellants and the respondent was not having any control over the same or on sale of same and were just entitled to get the amount in accordance to manganese excavated thereby resulting in no contravention to Rule 37.

The Court further observed that the agreement in question was not determinable and hence contract was specifically enforceable. The Court said that the only clause in the agreement in regard to termination of contract was clause 8.2 where either party had to before termination of contract serve notice of 90 days to the other party to remedy the breach. The Court said occasion of such nature never arose and hence the contract was not determinable unless the condition therein was fulfilled and thence section 14 (1) (c) was not attracted.

The Court further observed that the agreement provided for different rates at which the respondent was to be paid depending on the grade of manganese extracted and there forth if calculations are made at the rate agreed for the best quality of ore, the minimum quality of ore if extracted by the respondent in each year can be calculated in terms of money. The court further said Respondent had also quantified the amount of loss sustained by it in its application under section 9 and thus held that the respondent was able to quantify the loss sustained by it till the application was filed before the District Judge and thus it cannot be said that loss if sustained cannot be calculated in terms of money.

The court further said hence the respondent were not entitled to the order of injunction as the Respondent could not prove that irreparable loss if sustained by it due to termination of contract cannot be compensated in terms of money.

Thus, the court allowed the appeal of the appellant only on the ground that the respondent could not prove that irreparable loss as sustained by it cannot be compensated in terms of money though the respondents had a prime facie case against the termination of contract and balance of convenience also lied in their favour. However, the court also observed that Respondent could claim compensation against the termination of the contract from the appellant under section 75 of the contract act.

The court in its judgment set aside the impugned order of the District Judge.

Law Senate Comment: Thus, the Orissa High court held that lessee of a mining lease can appoint agency (under a contract) to undertake mining operations on the leasehold land held by it provided that lessee still has substantial control over the leasehold land and over the entire mining operation and the other party is acting as raising contractor.