Holding

The word "royalty" in the assignment deed was used in a loose sense to denote periodic payments as part of the consideration, not the State's sovereign share, and therefore the clause is enforceable.

Summary

The appellants, heirs of Pishora Singh Sial, sued the assignees of a mining lease for unpaid sums labeled as "royalty" under a 1939 assignment deed. The respondents argued that "royalty" meant the State's share in mineral extraction and could not be claimed by a private party, contending the payments made for twenty years were a mistake. The trial court held that the term denoted a periodic payment as part of the consideration and awarded the claim, but the Madhya Pradesh High Court reversed, interpreting "royalty" in its technical mining sense and invoking Section 11 of the Transfer of Property Act to void the clause. The Supreme Court examined the primary and secondary meanings of "royalty" and concluded that in the deed it was used loosely to cover future periodic payments, i.e., part of the consideration, not a sovereign right. Consequently, the Court held the clause valid, restored the trial court decree, and allowed the appeal.

Issues considered

The proper meaning of the term "royalty" in the 1939 assignment deed – whether it signifies the State's share in mineral extraction or a periodic payment as part of consideration.
Whether Section 11 of the Transfer of Property Act renders the royalty clause void as a restriction on alienation.
Whether the royalty stipulated in the deed forms part of the consideration for the assignment or constitutes a separate obligation.

Legislation cited

Companies Act, 1913
Transfer of Property Act, 1882s. 11, s. 54

Subjects

contract interpretationroyaltyconsiderationmining leaseassignment deedTransfer of Property ActSection 54Section 11periodic payment

Judgment

INDER.JEET SINGH SIAL A
v.
M/S. KARAM CHAND THAPAR

SEPTEMBER 25, 1995

B
[M.M. PUNCHHl AND SU.JATA Y. MANOHAR, .I.I.[

Contract-lnte1pretation of deed assigning mining light.1~W1tether the
word "royalty" was used to de.\·c1ibe pay111ent as pa1t of consideration and not
in the sense of State's share in the nzineral-Held, yes; the tt-·ord ivas used in
a loose sense and n1ea11t to cover consideration due for future pay-
c
ments-Tram/er of Propeity Act, 1882 S.54.

U'ords & Phrases: 'Consideration', 'Royalty'-Meaning of

TI1e predecessor-in-interest of the appellants, PS, obtained a mining D
lease from the Government of Central Provinces in 1938. He received
permission from the government to assign his rights in the lease and
prospecting licence in favour of the respondent. The government secured
for itself payment of royalty from PS upto a date and thereafter from the
respimdent. In the deed of assignment in 1939, the respondents undertook
to pay "royalty" as part of the consideration for the assignn1ent over and E
above the royalty payable to the government.

These payments were suddenly stopped after twenty years leading to
the a1ipellants filing a suit for recovery of the sums due. The respondents
resisted the suit contending that the deed postulated pa)ment of royalty F
as kno\.\'Il to the n1ining \Vorld as heing representative of the State's share
in the mineral for righ!s conferred and not payable to any individual. The
earlier payments were termed as a mistake. The trial court negatived this
contention and decreed the suit holding that the so-called royalty as used
in the deed was merely a periodic payment.
G
The High Court reversed the finding on the ground that the deed
having been drafted by la>1yers, the word "royalty" had to be understood
in the \vay it \.\as by those in the 1nining business and that a distinction
had to be kept between "royalty" and "consideration" with the former not
forming part of the latter. H
53
54 SUPREME COURT REPORTS (1995]SUPP. 4 S.C.R.

A Allowing the appeal, this Court

HELD : 1.1. In its primary and natural sense "royalty", in the legal
world, is known as the equivalent or translation ofjura regalia or jura regia.
Royal rights and prerogatives of a sovereign are covered thereunder. In its
secondary sense the word "royalty" would signify, as in ruining leases, that
B part of the reddendum, variable though, payable in cash or kind, for rights
and privileges obtained. It is found in the clause of the deed by which the
grantor reserves something to himself out of that which he grants. It may
even be a clause reserving rent in a lease, whereby the lessor reserves
something for himself out of that which he grants. [55-B]
c 1.2. In the instant case, the word "royalty" in the deed was used in a
loose sense so as to convey liability to make periodic payments to the
assignor for the period during which the lease would subsist. It really
meant to cover an important item of the consideration due for future
payments. S.54 of the Transfer of Property Act clearly postulates that sale
D is a transfer of ownership in exchange for a price paid or promised to be
paid or part paid and part promised. In either situation title to the
property would get transferred. [61-B, HJ •
1.3. When in the deed the words "consideration" and "royalty" have
been employed to convey a meaning, the same has been used in the plaint
E to convey the same meaning as originally conceived of by the contracting
parties. [62-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 778 of
1978.
F
From the Judgment and Order dated 30.8.76 of the Madhya Pradesh
High Court in F.A. No. 29 of 1971.

S. K. Bhattacharya, (Sarwa Mitter) for Mitter & Mitter Co. for the
Appellants.
G
O.P. Malhotra, Ms. Meera Mathur and Ms. Hirachandani, for .IBD
& Co. for the Respondents.

The Judgment of the Court was delivered by

H PUNCHHI, J. We are required in this appeal to ascribe a meaning
LS. SAIL v. K.C. THAPAR [PUNCHH!.J.) 55

to the word "royalty" figuring in a deed of assignment of mining rights A
between two beings, both devoid of regalia.

In its primary and natural sense !!royalty", in the legal \VOrld, is known
as the equivalent or translation of jura regalia or jura regia. Royal rights
and prerogatives of a sov~reign are covered thereunder. In its secondary
sense the word "royally" would signify, as in mining leases, that part of the
B
reddendum, variable though, payable in cash or kind, for rights and
privileges obtained. It is found in the clause of the deed by which the
grantor reserves something to himself out of that which he grants. It may
even be a clause reserving rent in a lease, whereby the leRSor reserves
something for himself out of that which he grants. But "What is in a name? c
A rose by any other name would smell as sweet". So said Shakespeare.

We will now get on to the merit of the matter.

The appellants are the plaintiffs. They are the heirs of one Sardar D
Pishora Singh Sial. By deed Ex. D-2 dated 19.11.1938, Pishora Singh
obtained a mining lease from the erstwhile Government of Central provin-
ces for extraction of coal in 420.27 acres of land in village Dighawani,
District Chhindwara. He also obtained in the same village a prospecting
licence vide deed Ex. D-3 dated 22.11.1938 to prospect of coal in an area
measuring 242.29 acres. Before hand, on 16-11-1938 in anticipation of E
obtaining the lease and the licence he entered into a contract with Karam
Chand Thapar and Brothers Ltd. to assign his rights i_n the lease and
prospecting licence when maturing. On obtaining, he sought and received
permission from the Government on 7.3.1939 vide Document Ex.D-4 for
transferring those two rights lo Karam Chand Thapar and Brothers Ltd. F
The Government however secured thereunder for itself payment of due
royalty from Pishora Singh uptill a particular date and thereafter from the
said company. On such permission being granted, a sale deed was executed
by Pishora Singh Sia] in favour of Karam Chand Thapar and Bros. Ltd.
on 13th June, 1939/30 June, 1939 vide document Ex. D-5. This first assignee G
later assigned its rights, interests and obligations in favour of the second
assignee M/s. Rawanawara Collieries vide document Ex. D-8 dated 5-7-
1940 and in the same pattern, the second assignee sold its rights, interests
and obligation lo the third assignee Mis. Oriental Coal Company Ltd. The
lease alld licence was for a period of thirty years starting from particular
dates as embodied in the initial deeds. H
56 SUPREME COURT REPORTS 11995] SUPP. 4S.C.R.

A In the assignn1cnt deed Ex. D-5 1 the consideration settled has been
detailedly mcnLioncd. We would advert to the same later. At this .iuncture,
we need only to highlight that there are distinct two royalties which are
playing their part. Fir<t is the royalty which Pishora Singh, legally bound,
had undertaken to pay to the Stale Government on obtaining mining and
prospecting rights. The State Government while sanctioning subsequent
B transfers had to and specifically kept preserved that right against all the
subsequent transferees. That royalty undeniably was in assertion of the
State's right to the mineral gotten or to be gotten, and for the rights and
privileges conferred in regard thereto. That the State had such right in such
venture as known to law, in the primary or secondary sense, is beyond
c dispute. The second "royalty" figuring is embodied in the assignment deed
Ex.D-5 wherein royalty has been undertaken to be paid by Karam Chand
Thapar and Bros. Ltd. to Pishora Singh to lhc ntrnl '""l manner stipulated
therein as part of the consideration for assignment, over and above the
royalty payable to the State. The liability to pay such stipulated royalty to
D Pishora Singh ultimately rested on the three afore-mentioned assignees,
jointly as well as severally. And in the discharge of that liability undisputab-
ly periodic payments had been made to Pishora Singh (including his heirs)
for about 20 years. Then suddenly, as is the case, the assignees cooled off •
and stopped making payments. Correspondence then ensued between the
parties, but to no avail. Ultimately, the heirs of Pishora Singh Sia! filed a
E suit against the three assignees for recovery of the sums of royalty then
fallen due, together with interest; total claim then being for Rs. 2, 32,627.18
upto a certain period and on quantities of coal despatched.

The defendants-respondents contested the suit. The execution of the
F documents inter se, reference of \vhich has been made earlier, \Vas not
denied. The main thrust of the defendants was that deed Ex. D-5 postu-
lated payment of royalty, descriptively well known to the mining world,
which is representive of the State's share in the mineral for such rights
conferred, but not by a prerogative exercised by an individual. It was
G further pleaded that the situation of law at that point of time, when the suit
was being contested, was that demand of any payment as royalty by an
individual was prohibited. Past payments of almost 20 years were termed
by the defendants as having been made mistakenly. The Trial Court then
on interpreting the terms of document Ex. D-5 held that the obligation of
H the defendants-respon_dents lo pay the so called royalty lo the plaintiffs-
... LS. SAIL v. K.C. TI{APAR jPUNCHHl,.I.] 57

appellants was merely a periodic payment, as in the deed stipulated, and A
was thus not royalty as such. Accordingly, the Trial Court decreed the suit
but reduced the interest on the sum claimed to 4 per cent per annum till
payment, details of which are evident from its judgment and decree.

The defendants' first appeal before the High Court of Madhya
B
Pradesh was placed before a Division Bench of two Hon'ble .Judges. One
of whom took the view that the stipulated payment was meant Lo be royally
as such and thus not claimable by the plaintiffs as individuals. We would
rather quote the very words employed by the Hon'ble Judge :

"The tenor of the document clearly shows that a distinction was c
dra\vn between consideration for assignment of the lessee's inter-
est which was to be paid to the vendor in addition to this con-
sideration for the remaining period of the lease subsequent to the
transfer of the lessee's interest by the vendor. This distinction has
also been maintained in the plaint averments and the suit is D
expressly for recovering the amount claimed as royalty subsequent
to the transfer of the lessee's interest. ,There is thus no an1biguity
in the p)aintiffs' case contained in the plaint which clearly shows
that the claim is not for payment of a part of the consideration but
is only for payment of the royalty claimed in addition to the
consideration of Rs. 30,000 for transfer of the lessee's interest. The E
endorsement of registration on Ex.D-5 also indicates that the
consideration for the transfer was treated to be the sum of Rs.
30,000 only. It is also significant that Ex. D-5 is drafted as a forma.l
document apparently by some lawyer and the parties thereto were
persons quite conversant \Vith mining leases and consequently \\rith F
the meaning of the expressions 'consideration' and. 'royalty'. That
being so, there is no reason to construe the word 'royalty' in a
manner different than that in which it is used and understood by
persons in the mining business. All these facts clearly show that
royalty as it is ordinarily understood by persons in the mining
business and it \Vas in that sense that the word was used also in G
Ex. D-5 as distinct fro1n the consideration for assignment of the
lessee's interest. There is thus no basis to contend that the suit is
for recovery of a part of the unpaid consideration and the term
providing for payn1ent of royalty 1nust be construed as one pruvi<l~
ing for deferred payn1cnt of a part of the consideration." H
58 SUPREME COURT REPORTS (1995] SUPP. 4 S.C.R.

A The other Hon'ble Judge agreed with the view so expressed by his
colleague. Yet he went on lo hold that the term in the deed Ex. D-5
directing payment of royalty or rent would be offensive to the enjoyment
of absolute rights and thus hit by the provisions of Section 11 of the
Transfer of Properly Act. The appeal of the defendants-respondents was
thus allowed and the suit was dismissed. This gave birth to this appeal.
B
Leave was sought from the High Court by the appellants, to appeal
lo this Court inter alia on the basis that when the Hon'ble Judge on
applying Section 11 of the Transfer of Property Acl had voided an impor-
tant element of consideration of payment of royalty fixed in the assignment
C deed, it raised an important question of law of public importance. The
Hon'ble Judges hearing the matter met the claim of the appellants by
observing that the point regarding the applicability of Section 11 was not
the basis of decision end was only incidentally mentioned by one of the
Hon'ble Judges. Further it was viewed that in the circumstances, it could
D not be said that the case involved a question relating to the interpretation
of Section 11 of the Transfer of Property Act requiring decision of this
Court. In this way, the application for leave was summarily dismissed. On
such expressed views of the High Court with regard to Section 11 of the
••
Transfer of Property Act not having any role to play, we are absolved of
the need to prod the provision, for the High Court itself has virtually
E reviewed its decision on that point, by declaring that the said provision of
law was not the basis of the High Court 's decision.

The time has now arrived to take stock of the term which has raised
all this argument. Even though lengthy it is worth reproduction :

F "Ill CONSIDERATION

(a) Rs. 10,000 Ten Thousand has been paid to the vendor by the
vendee as earnest money al Calcutta at the time of the Execution
of the agreement of sale d/- 16th November 1938.

G (b) 2000 (Two thousand) FULLY PAID ORDINARY SHARES
of the value of Rs. 10 (ten) each in the Capital of the Proposed
"RAWANWARA COLLIERIES LIMITED" shall be allotted to
the VENDOR by the VEND EE within SIX MONTHS hereof, on
the said "RAWANWARA COLLIERIES LIMITED" being incor-
H porated under the Indian Companies Act of 1913. In the event of
LS. SAIL v. K.C. IBAP AR [PUNCHHI, J.] 59

such a company being not incorporated for any reason whatsoever A
within the said period of SIX months THE VENDEE shall pay
lhe sum of Rs. 20,000 (Twenty Thousand) only lo the SAID
VENDOR in cash.

(c) In addition lo the consideration paid as stated in clause (a) of
this paragraph and that agreed to be paid by the VENDEE to the B
said VENDOR as per clause (b) of this Paragraph the said
VENDEE company effectively binds itse1t; its successors, trans-
ferees, assigns and liquidators to pay to the SAID VENDOR, his
heirs, executors, representatives, administrators, and assigns,
Royally at the rates mentioned below and subject to the terms c
slated in Clauses hereinafter following in this paragraph :

(d) (i) Royalty or rent at -/4/- (annas four) per ton on all coal
despatched from the properties hereby conveyed subject to the
minimum stated in clause (d) (iii) below.
D
(ii) The payment of the said Royalty or the guaranteed mini-
mum Royalty as per Clause (d) (iii) below shall commence a year
after the execution of these presents i.e. no royalty is payable to
the VENDOR for the aforesaid period of one year.

(iii) It is however definitely expressed and declared that the
E
VEND EE shall pay to the VENDOR Rs. 1500 (One thousand and
five hundred) as minimum guaranteed Royalty or rent every half
year from the second year reckoned from the date of the execution
of these presents, that is to say, after. the one year stated in clause
(d) (ii) above and thereafter that is to say from the THIRD YEAR F
reckoned as above, Rs. 3600 (Three Thousand and six hundred
only), every half year at Chhindwara during the whole of the
unexpired term of the hereincited mining lease and the prospecting
license or mining lease granted to the VENDEE over all or any
portion of the lands covered by the aforesaid prospecting license G
di- 19-11-1938 as well as during the entire term of fresh leases of
the said concessions if and when granted or renewed by the
Government to or in favour of the VENDEE.

(iv) The aforesaid half yearly Royalty or rent as per clause (d) (iii)
above shall be paid to THE VENDOR by the VEND EE irrespec- H
60 SUPREME COURT REPORTS [1995] SUPP. 4 S.C.R.

A tive of whether any coal be raised and despatched from the mines
or not. If in any half year no coal is won or despatched or sufficient
coal is not won and despatched lo produce for that half year al
the rates mentioned in clause ( d)(i) above Royalties aggregating
the amount of the minimum Royalty, mentioned in clause ( d)(iii)
above the VENDEE shall either pay the said minimum Royalty or
B
such a sum as shall along with Royally on the coal actually won
and despatched during that half year, be required to make up the
n1inimum royalty guaranteed above.

(v) If the VENDEE Company at any time desires to transfer its
c rights and title in the colliery properties hereby conveyed THE
VEND EE hereby undertakes to keep the said VENDOR FULLY
AND EFFECTIVELY covered, lo his satisfaction, to the extent
of his (VENDOR'S) Royalty-rights, the transferee agreeing and
covenanting to comply with the several stipulations and obligations
as embodied in these presents."
D
It is manifest that four reasons have been advanced by the High
Court to upset the judgment and decree of the Trial Court. These are (i)
that deed Ex. D-5 was drafted as a formal document apparently by some
lawyer and parties thereto were persons quite conversant with mining
E leases; and consequently with the meaning of the words "consideration" and
"royalty"; (ii) the word "royalty" used in the document must be understood
the way it is used and understood by the persons in the mining business;
(iii) the consideration money was Rs. 30,000 only as the endorsement of
registration on the deed indicated and that was the total consideration; and
(iv) in the plaint distinction has been kept between the words "considera-
F tion" and "royalty" and so royalty could not be part of the consideration.

With respect we do not agree with any of those reasons. It may be
true that the document Ex.D-5, written in English language, may have been
prepared by a lawyer and was entered into between persons conversant
G with the vocabulary employed in mining leases. Yet these factors per se
cannot conclude the matter that the word "royalty" used in the document
was meant to be royalty as such. If intelligence and responsibility is to be
attributed to the draftsman and the contracting parties for using the word
1
'royalty11 in that technical sense, then it cannot be in1agined that they \vould
1-1 have overlooked the status of the contracting parties inter se. We cannot
LS. SAIL v. KC. THAPAR [PUNCHHI,J.) 61

thus assume that they were well versed in one aspect and not in the other. A
Strictly speaking, had the draftsman and the signatories to the deed meant
"royalty" as such, then they could not have omitted to identify who had the
sovereign prerogative or the State part to play. The word "royalty" thus, in
the deed was used in a loose serise so as to convey liability to make periodic
payments to the assignor for the period during which the lease would B
subsist; payments dependent on the coal gotten and extracted in quantities
or on despatch. We have therefore, to construe document Ex.D-5 on its
own terms and not barely on the label or description given lo the stipulated
payments. Conceivably this arrangement could well have been given a
shape by using another word. The word "royalty'' was perhaps more handy
for the authors to be employed for an arrangement like this, so as to ensure
c
periodic payments. In no event could the parties be put to blame for using
the word "royalty" as if arrogating to themselves the royal or sovereign right
of the State and then make redundant the rights and obligations created
by the deed.
D
The commodity goes by its value; not by the wrapper in which it is
packed. A man is known for his worth; not for the clothes he wears. Royal
robes worn by a beggar would not make him a King. The document is
weighed by its content, not the title. One needs to go to the value, not the
glitter. All the same, we do not wish to minimise the importance of the E
right words to be used in documents. What we mean to express is that if
the thought is clear, its translation in words, spoken or written, may, more
often than not, tend to be faulty. More so in a language which is not the
mother tongue. Those faulted words cannot bounce back to alter the
thought. Thus in sum and substance when the contracting parties and the F
draftsman are assumed to have known that the word 11 royalty11 is meant to
be employed to secure for the State something out of what the State
conveys, their employment of that word for private ensuring was not
intended to confer on the assign_or the status of the sovereign or the State,
and on that basis have the document voided. Therefore, we are of the view
that the word "royalty" was used in the deed misdescriptively and was really G
meant to cover an important item of the consideration due for future
payments. Section 54 of the Transfer of Property Act clearly postulates that
sale is a transfer of ownership in exchange for a price paid or promised to
be paid or part paid and part promised. In either situation title to the·
property would get transferred. This, in our view, demolishes the first two H
reasons.
62 SUPREME COURT REPORTS (1995) SUPP. 4 S.C.R.

A On the third reason about the endorsement of the deed showing
consideration of Rs. 30,000 only which was part of the consideration
covered in the deed, the endorsement itself is the answer. The stamp reads:

"....... who is personally known to me, admits execution of the so
called conveyance deed and receipt of consideration in full/part
B Rs. 30,000 (Thirty Thousand only} as per documents ....... "

Whereas the Sub-Registrar has scored off whatever was necessary in the
alternate words provided in the stamp, he has no where cancelled the
inappropriate word to signify whether Rs. 30,000 was full consideration or
part consideration. Rather he has left the consideration to be of the nature
c as reflected in the document. The endorsement per se thus cannot be so.
read so as to rule that Rs. 30,000 was the total consideration. It was plainly
a part payment and the balance consideration was meant to be periodically
paid in the sum and manner stipulated in the deed. A fortiori on such
analysis the fourth reason also fails because when in the deed the words
D "consideration 11 and 11 royalty11 have been employed to convey a meaning, the
same has been used in the plaint to convey the same meaning as originally
conceived of by the contracting parties. -
Therefore, in our view, the well reasoned judgment of the Trial Court
was erroneously upset by the High Court in depriving the plaintiffs-appel-
E lants of their rightful dues. As a result, we allow this appeal, set aside the
impugned judgment and decree of the High Court and restore that of the
Trial Court, with costs.

S.M. Appeal allowed.