India – Infrastructure Snapshots.

1 May, 2016

 

Union Cabinet approves amendment to the MMDR Act, 1957 

 

On March 10, 2016, the Union Cabinet gave its approval for amending the Mines and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’). The MMDR Act restricted the scope of transferability of mining leases granted by way of auction. The proposed amendment will allow transfer of captive mining leases not granted through auction, subject to prior consent of the Government and compliance with the terms and conditions to be framed by the Central Government in this regard. If the proposed amendment is passed by the Parliament, then it will enable transfer of assets/ undertakings by companies, including the captive mining leases, and also help banks and financial institutions liquidate stressed assets where a captive mining lease has been mortgaged.

 

The explanatory note to the draft amendment indicated that the Central Government may, if feasible, while framing terms and conditions for transfer of captive mining leases, inter alia, specify conditions relating to realisation of an appropriate amount, if any. 

 

Government notifies the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 

 

The Central Government has issued the Minerals (Other than Atomic and Hydro Carbon Energy Minerals) Concession Rules, 2016 (‘MCR’), which have been notified on March 4, 2016. MCR will apply to all minerals except (i) minor minerals defined under the MMDR Act; and (ii) minerals listed in Part A and Part B of the First Schedule to the MMDR Act, i.e., hydro carbon energy minerals (coal and lignite) and atomic minerals. MCR supersedes the Mineral Concession Rules, 1960, with respect to all minerals to which MCR is applicable. 

 

Supreme Court judgment in the matter of State of Rajasthan and Others v. Gotan Limestone Khanij Udyog Private Limited and Another 

 

 

The Government of Rajasthan (‘GoR’) had, under Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986 (‘RMMCR’), permitted transfer of a mining lease in respect of limestone (of a grade qualifying it to be a minor mineral) (‘ML’) from Gotan Limestone Khanij Udyog, a partnership firm (‘Firm’), to Gotan Limestone Khanij Udyog Private Limited (‘Company’). The Company was formed with the partners of the Firm as shareholders and directors of the Company, and the only asset being ML. Soon after the transfer of ML in April, 2012, the shareholders of the Company sold all their shares to Ultratech Cement Limited in July, 2012 for a substantial consideration. This was objected to by GoR. The matter reached the Supreme Court (‘SC’) wherein SC held that looking at the two transactions as one, it was clear that the transaction was structured to avoid the restrictions under the RMMCR. SC directed GoR to formulate a policy in respect of transfer of mining leases and then decide on the change in shareholding of the Company.

 

It is pertinent to note that Rule 15 of the RMMCR has language substantially similar to the language of Rule 37 of the Mineral Concession Rules, 1960, which deals with the transfer of mining leases pertaining to major minerals.

 

In this matter, SC has not specifically addressed the question as to whether transfer of majority shareholding in a company that holds mining lease(s) requires prior consent of the competent authority. It appears that the ratio of the aforesaid judgment, which has to be seen in light of the facts of the matter, is primarily based on the principle of lifting the corporate veil.