Introduction
The Apex Court in the case of Director of Mines and Geology v. M/s BMM Ispat Ltd. & Anr. 2026 INSC 627, decided on June 4, 2026, by Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh, held that royalty on minerals governed under the Mines and Minerals (Development and Regulation) Act, 1957 will be paid in accordance to the rate prevailing on the date of removal or dispatch of the mineral from the mine irrespective of the rate contemplated in the contract by the parties.
The Honourable Court held that just because a contract is entered into on a prior date, that cannot be the cause to limit the impact of the enhancement of the royalty on the later date of movement of minerals. If there has been a statutory change in the rate of royalty of a mineral in the schedule under MMDR Act, then that rate will prevail irrespective of the rate set in the parties’ contract.
Brief Facts
The case came into light due to an auction conducted by a monitoring committee constituted by the Supreme Court for disposing the exiting stock of iron ore. M/s BMM Ispat Ltd. (Company) emerged as the successful bidder in the e-auction of June 2014. At the time, the royalty was 10% under the Second Schedule of the Act, which the company paid completely on the auction day itself, along with other charges and security deposit of Rs 50 per tonne. What the company didn’t do was remove the iron ore completely until 1st September 2014 by when the rate of royalty of iron ore had risen to 15% from 10%. The company lifted the remaining quantity after the amendment came into force. When the company sought return of the security deposit, the Karnataka Accountant General pointed out a deficiency of 5% royalty on all the ore removed post-amendment which led to a deduction of RS 2,09,26,077 from the deposit returning only Rs 82,66,673. This action was challenged in front of the Karnataka High Court, which came in their favour, holding that imposing royalty after acceptance of full payment would be unjust. The State then appealed to the Supreme Court.
Analysis by The Court
The dispute in based on Section 9 of the MMDR Act, which governs the royalties in regards to mining leases. Sub section (i) and (ii) says “the holder of a mining lease must pay royalty in respect of any mineral removed or consumed from the leased area at the rate for the time being specified in the Second Schedule” and sub section (iii) empowers the Central Government to amend the Schedule to enhance or reduce rates. There is no provision within the section that freezes the rate at the time of auction or contract.
The Karnataka High Court reasoned that there was admittedly no time limit prescribed for the lifting of the ore; the bids were accepted and full payment was made before 1st September 2014 and hence the contractual rate of 10% had crystallised.
The Supreme Court rejected this reasoning on two grounds:
- Based on the 9-judge bench judgment of Mineral Area Development Authority v. SAIL (2024) 10 SCC 1 where the majority opinion written by then Chief Justice D.Y. Chandrachud had held: “royalty is payable under Section 9 on the removal or consumption of minerals by the lessee in the leased area. Thus, essentially royalty is payable on the dispatch of minerals from the leased area.” The expression “dispatch” under Section 3(aa) of the MMDR Act means the removal of minerals from the leased area.
- It was held that there is no legal doctrine for crystallisation of royalty and that it is a statutory levy which cannot be frozen by contractual agreement. When a parliamentary statutory amendment changes the rate applicable, the contract must yield.
The Company had time between the June 2014 auction and September 1, 2014 to lift all the ore. It did not do so. The Court declines to reward that inaction with a contractual shield.
The Court broadly implied that:
- The clock for determining the applicable rate of royalty starts at the removal of the mineral ore and not at auction or payment. Buyers of mineral stocks through e-auctions (especially court supervised like in the present case) must keep this in mind while planning the pace of the lifting.
- While parties can draft clauses in their contracts for absorption of variations in existing rates, there cannot be any private arrangement that can freeze the rate against a future legislative change.
Conclusion
The Supreme Court’s decision removes the ambiguousness from the text of Section 9 of the MMDR Act and reinforces the primacy of statutory obligations over contractual expectations. The judgment is a reminder that in matters of resource exploitation, which carries a strong public interest dimension, the State’s regulatory power to revise royalty rates cannot be bargained away by auction terms or bid acceptances. For mining companies and auction participants, the applicable royalty rate will always be what the law says it is on the day the ore moves, not the day the deal is signed.
Shomdeepta Chanda
Intern at The Indian Lawyer & Allied Services
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