Holding

Section 9(3) is a valid delegated legislative power within Parliament’s competence under Union List Entry 54 (and Entry 97), and the 1991 royalty‑rate notification is not ultra vires, colourable, or arbitrary.

Summary

The Supreme Court examined petitions by the State of Madhya Pradesh and the Union of India challenging a 1991 notification that raised royalty rates on coal under Section 9(3) of the Mines and Minerals (Regulation and Development) Act, 1957. The petitioners argued that Section 9(3) was an unconstitutional delegation of legislative power and that the notification was ultra‑violus, colourable and confiscatory. The Court held that the Act falls within Parliament’s competence under Union List Entry 54 (and residuary Entry 97), and that Section 9(3) provides sufficient guidelines, including a three‑year ceiling, to avoid excessive delegation. It further found that the 1991 notification was a valid exercise of the delegated power, having a legitimate nexus with mineral development and not being arbitrary or for an alien purpose. Consequently, the High Court’s order quashing the notification was set aside and the writ petitions dismissed. The appeals by the State and Union were allowed, while the appeal by the private respondents was dismissed.

Issues considered

Whether Section 9(3) of the Mines and Minerals (Regulation and Development) Act, 1957 is ultra vires the Constitution or illegal on any ground.
Whether the notification dated 1 August 1991 fixing higher royalty rates is beyond the scope of Section 9(3) and therefore invalid.
Whether the notification constitutes a colourable exercise of legislative power.
Whether the notification is arbitrary, irrational or confiscatory in violation of Articles 14 and 19(1)(g) of the Constitution.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Entry 23 of State List, s. Entry 50 of State List, s. Entry 54 of Union List, s. Entry 97 of Union List
Mines and Minerals (Regulation and Development) Act, 1957s. 28, s. 9

Subjects

royaltymines and minerals actdelegated legislationconstitutional validityexcessive delegation of legislative powerUnion List Entry 54State List Entry 50taxationArticle 14Article 19(1)(g)colourable legislationarbitrariness

Judgment

A STATE OF M.P. __;1_-,..-
v.
MAHALAXMI FABRIC MILLS LTD. AND ORS.

FEBRUARY 1, 1995
B
[KULDIP SINGH, B.L. HANSARIA AND S.B. MAJMUDAR, JJ.)

Mines and Minerals (Regulation and Development) Act, 1957-Section ~
· 9-Validity of-Section 9 is within legislative competence of Parliament both
under entry 54 of Union List as well as entry 97 thereof-'-Section 9(3) does
c not suffer from any excessive delegation of legislative power-Notification
dated 1-8- 91 issued u/s 9(3)-Whether beyond the scope of Sec. 9(3)-Held,
No-lt was not a colourable devise.

The respondents, purchasers of coal from Coal India Ltd. filed writ
D petitions before the High Court, complaining that the Notification dated
1.8.1991 issued by the Union of India u/s 9(3) of the Mines and Minerals _)
(Regulation and Development) Act, 1957, fixing new rates of royalty on
various varieties of coal was Ulegal and inoperative in law on various
grounds;\that before 1.8.1991 royalty was payable at the rate of Rs. 6.50
per ton vi~e earlier Notification but the same was sought to be increased
E to Rs. 120. per ton by the new Notification; that Section 9(3) confers
I

unguided, ,unchannelized and arbitrary discretion to the Central Govern-
- ment to increase the rates of royalty to any higher amount and as no
guidelines were provided for effecting the said increases, the Section itself
is an instance of excessive delegation of essential legislative power and _._
F hence it was void. The Division Bench of the High Court quashed the ..
Notification while holding that Section 9(3) of the Act was not invalid or
illegal on any ground, however, the Notification was lacking in bona fides
and as it was issued for meeting the financial deficiency suffered by States,
it was outside the scope of Section 9(3) of the Act. No direction for refund
of any amount was issued as according to the High Court the burden of
G enhanced royalty was already passed on to the customers by the manufac-
turers. The State as well as the Union of India and also some consumers ~

filed these appeals against the order of the High Court.

The appellants contended that the High Court was patently in error
H in striking down the impugned Notification dated 1.8.1991; that once this
756
SI'ATEOFM.P.v. MAHALAXMIFABRICMILLSLTD. 757 ',

court took the view in Orissa Cement Company's case that royalty cool~ A
~ ~ not be imposed by States, that it was within the domain of the Central
Legislature in view of Entry 54 of List I of Schedule VII of the Constitution
and when the .Parliament had already occupied the field pertaining. to
regulation and development of mines and minerals in the country by
enacting the Act in 1957, if the rates of royalty were to be increased, it was
only the Central Government which could exercise power u/s 9(3) of the
B
Act and as the royalty had to be paid to the States, there was nothing wrong
in issuing the impugned notification under which increased rates of royalty
would be made available to the concerned states; that there was nothing
wrong in Section 9(3) which gives enough guidance to the Central Govern-
ment for issuing such Notification and that such Notification could not be c
said to be ultra vires or illegal or unconstitutional.

The respondents submitted that Section 9(3) of the Act was a piece
of excessive delegation of legislative power of Parliament, that it laid down
..+ no guidelines for the Central Government to follow for increasing the rates D
;,... of royalty; that even otherwise it sought to tax mineral rights, the Section
was beyond the legislative competence of the Parliament as such legislation
would be covered by Entry 50 of list 2 of the Vllth Schedule and therefore,
legislative competence in connection with tax on mineral rights would be
exclusively of State Legislature and not of Parliament; that the impugned
Notification enhancing the royalty by almost 200 percent was ultra vire~ the E
putpose and object of the Act as the purpose of the Notification was to
increase the revenues of the State Governments and as it had nothing to
do with the development of .the mines, the Notification was beyond the

- scope and ambit of Section 9(3) of the Act; that the Notification issued u/s
9(3) must have direct nexus with royalty which would be a payment made
for the privilege of removing the minerals and it had to be charged on the
p

-
quantity removed; that no Notification u/s 9(3) could be issued by the
Central Government only for increasing the general revenues of the States,
that such a purpose is outside the scope of Section 9(3) and in substance,
by the impugned Notification, the Central Government had imposed a tax G
for the purpos.e of swelling the revenues of the\ States and not for the
purpose of increasing royalty on any permissible ground which may be
within the scope of Section 9(3) of the Act; that Section 9 of the Act had
nothing to do with mineral development and, therefore, enactment of
Section 9 could not be supported under entry 54 of the Union List but
would be covered by the sweep of Entry 50 of the State List; that royalty is H
758 SUPREME COURT REPORTS [1995] 1 S.C.R.

A a tax and there was no Entry in t_he Union List which could support such
a tax and it would clearly fall within the scope and ambit of entry 50 of the
/ .
State List; that every tax should have a tax entry and as there was no
specific entry regarding imposition of tax by way of royalty in the Union
List such tax could be governed by Entry 50 of the State List; and so,
B impugned Section 9(3) is beyond the legislative power of the Parliament;
that the impugned Notification, even if assumed partly to be based on
relevant grounds, it was not wholly issued for the purpose of development
of minerals but for the purpose of development of State coffers and,
therefore, the entire Notification had to be struck down as invalid and
incompetent as an alien purpose cannot be mixed with the relevant pu.r-
C pose for exercising any statutory power even including the power to ·exer-
cise delegated legislative function.
I
The issues raised for determination were (i) whether Section 9(3) of
the Act is ultra vires the Constitution and/or is illegal on any other ground;
(ii) whether the impugned Notification is beyond sfope of Section 9(3.) of
D the Act and, therefore, incompetent and invalid? (iii) whether the impugued
Notification is a piece of colourable exercise of power? and (iv) whether the
impugned Notification is arbitrary and confiscatory in natur;e?

Disposing of the appeals, this Court

E HELD : 1.1. The Mines ~nd Minerals (Regulation and Development)
Act, 1957, is enacted by Parliament under Entry 54 of the Union List. The
entire Act being within the exclusive domain of legislative power of the
Parliament, Section 9 which is part and parcel of the same Act would also
fall within Entry 54 which deals with regnlation of mines and development _......
F of minerals and for which a declaration is already found in Section 2 of the •
Act to the effect that such regulation of mines and minerals development
under the contr~I of the Union is expedient in public interest.
[770-F, 771-B]
Baijnath v. State of Bihar, AIR (1970) SC 1436, relied. on.
G 1.2. Parliament while enacting Section 9 has already laid down the
rates of royalty to be charged on the removal and consumption of mineral
by any lessee of mining lease, his agent or manager or sub-lessee, from the
leased area. The rates of royalty are scheduled in the Act. So far as coal
is concerned it is by Entry 11 of the Second Scbedule. Separate rates of
H royalty are prescribed for different types of coal. However, the Parliament
STATEv. MAHALAXMIFABRICMILLS 759

- __._
felt that these rates of royalty may be required to be enhanced or reduced A
from time to time due to fall of money value with the passage of time or
vice vei:ra. For that very purpose the Central Government as per Section
9(3) is permitted by Parliament to amend the Second Schedule by Notifica-
tion to be published in Official Gazette from time to time subject to the
proviso that the Central Government shall not enhance mineral and mines
royalty for more than once during the period of three years. The power
B
conferred upon the Central Government under Section 9(3) is by way of
:....--'r
delegated legislative power. [772-B·D]

1.3. Royalty on mineral rights is a tax. It would be beyond legislative
competence of the State legislature as Entry 50 in List II would be of no c
avail once the Parliament has occupied the field by enacting the Act,
·especially Section 9 thereof. [772-F]

India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., [1990]
1 sec 12, relied on
A D
1"-

2. Once the Parliament has occupied the field in connection with
regulation of mines and minerals development in the country and when
the Parliament declares that it is expedient in the public interest so to do,
Entry 23 of the State list regarding regulation of mines and minerals
development would be of no avail to the State legislature as Entry 23 List E
II is subject to the provision of List I, nor will Entry 50 of the State List
can be of any assistance to the State authorities. Both the entries will be
out of way in enacting appropriate legislation imposing the rates of royalty
--+ \to be paid by those who extract minerals in the country. It is Entry 54 in
~
the Union list which will operate and the imposition of tax on minerals F
· extracted would be squarely got covered by Entry 54 of the Union list. As
the entire Act has been upheld by this Court, Section 9 being part and
parcel thereof cannot be out of the sweep of Entry 54. However, there is no
such specific entry in Union list nor in State list or concurrent list
regarding taxing of royalty on mineral rights which can sustain such
-f... legislation. In these circumstances the state legislature cannot rely on any G
entry in the/ _state list or concurrent list for imposing such a tax once a
valid legislation by Parliament under Entry 54 of the Union list is holding
the field. In the alternative imposition of such a hybrid tax on mines +
capital + labour would be covered by residuary Entry 97 of the Union list
which empowers the Parliament to enact laws on topics not coverea by H
760 SUPREME COURT REPORTS (1995] 1 S.C.R.

A other specific entries in List n or List III. Section 9 of the Act is within
the legislative competence of the Parliament both under Entry 54 of the
Union list as well as Ent~ 97 thereof. [776-D-H, 777-A]

3. Parliament itself has laid do~ the rates of royalty in the II
Schedule of the Act. However, the Parliament felt that with passage of time
B these rates of royalty may have to be suitably modified as the Act was
enacted years back in 1957. The purchasing power of rupee went on falling
year after year and decade after decade. Therefore, instead of Parliament
itself every time being required to increase the rates, it left to the Central
Government to do so but it imposed certain fetters on the power of the
C Central Government, Firstly, the proviso of Section 9(3) clearly lays down
that such enhancement should not be made before the end of four years,
and now after amendment before the end of three years. This itself indicates
a guideline laid down by the Parliament that the rate of inflation and fall
of money value of the rupee should be considered once in these years and
that the royalty should be enhanced only once three years. The second
D guideline in Section 9 (3) is pertaining to the very topic of delegation of such
legislative power. The Central Government has to keep in view the original
rates mentioned in Ilnd Schedule in connection. with different type of
minerals and to suggest suitable enhancement once in three years depend·
ing upon the requirements of the State concerned for whom the royalty is
meant. It is to be paid by holder mining lease who extracts minerals. If a
E person is merely in occupation of land which contains mines and minerals,
he is not liable to pay any royalty but it is only when he holds a mining lease
and by virtue of that extracts one or more minerals then only he is called
upon to pay royalty to the State Government as the lease is in respect of the
land in which minerals vest in the State Government. This exercise is to be
F carried out keeping in view the very object and purpose of the Act, namely,
regulation of mines and development of minerals which are the catch words
of Entry 54 List II under which the Act is enacted. Therefore, fixation of
royalty should have a direct nexus with the minerals throughout the
country on uniform pattern so that activity of winning the minerals for the
benefit of the lessee of such mining leases in the first instance and ultimate• !
G ly for the economy as a whole should not get in any w~y frustrated. Section
28 sub-section (1) is another safety valve provided, therefore it cannot be
said that the exercise of delegated legislative power of Central Government
in the first instance under Section 9(3) would suffer from any excessive
delegation. of legislative power or effacement of legislative power of the
H
STATE v. MAHALAXMI FABRIC MILLS 761

Parliament. [777-C-H, 778-A-D] A
N.K. Papiah· and Sons v. Excise Commissioner and Another, AIR
(1975) SC 1007 and Delhi Cloth and General Mills Co. Ltd. v. Union of India
& ors. etc. etc., AIR (1983) SC 937, relied on.

4.1. The legislature has entrusted the Central Government with the B
power to enhance the rates of royalty from time to time. Traditionally
speaking royalty is an amount which is paid under contract of lease by the
"' ~ lessee to the lessor, namely, the State Governments concerned and it is
commensurate with the quantity of minerals extracted. But since 1981 such
enhancement of royalty has not been done by the Central Government. C
Rates of royalty fixed before a decade, with the passage of time and fall in
money value and increase in inflation would naturally b~come illusory.
Therefore, the States would legitimately claim for inc..easing the rates of
royalty. They unsuccessfully tried to do so themselves by imposing cesses ·
on royalty. In these circumstances, it was perfectly open to the central
~ Government to exercise its power under Section 9(3) and enhance the rates D
.,.._ of royalty so that loss to the State's exchequer of the amounts which
otherwise wou'd have been available to the States could be compensated.
It is not that the States were otherwise not entitled to the royalty amounts;
but because of the operation of Section 9, the power of the States to
enhance the royalty get vested in the Central Government. But once the E
rate are enhanced royalty is to be received by the States and same is to be
recovered from concerned lessee of minerals. There is no question of the
royalty amounts being distributed by the Central to the States as per
Articles 268 and 269 of the Constitution. [782-G-H, 783·A·C]

4.2 That once royalty amounts are fixed by the Central Government F
under section 9(3), the States automatically become entitled to receive the
same from lessees of minerals who are allowed to extract them on payment
of such amounts of royalty to the state wh: h ls the owner-lessor ~f tliese
minerals. Enhancement of rates of royalty cannot be said to have no nexus
with the development of minerals only because the enhanced rates of G
royalty are to go to swell the exchequers of concerned states. (783-D]

. 4J To have a uniform pattern of rates of royalty to be charged for
•tracting different qualities and quantities of minerals from different
parts of the country is a very vital aspect of the development of minerals.
On'e of the main objects of the Notification was for recompensatlng the H
762 SUPREME COURT REPORTS [1995] 1 S.C.R.

A loss suffere_d by States; but the facts remains that they suffered loss since
the last hike in royalty was done in 1981 by the Central Government. It
cannot be said that en!n as purchasing power of rupee had fallen and
inflation had risen including the prices of coal in national and internation-
al market, there was no felt need for raising the rates of royalty to be
B charged for extraction of minerals like coal from the lease holders when
the mineral belonged to the State. If the amount of royalty is so enhanced,
it has to go to the coffers of the State concerned which is the owner of the
mineral. This is a logical corollary of enhanced rates of royalty. It cannot
be said to be an irrelevant consideration. On the contrary, it is a relevant
consideration because the State have to monitor the working of the mines
C and the income generating from extraction of minerals within their respec-
tive territories. If the Central Government exercised its power under
Section 9(3) of the Act though belatedly in 1991 for bringing out this result,
it could not be said that it had done what was ultra vires or beyond the
scope of Section 9(3) of the Act. Mineral as found in the bowels of the earth
D or attached to earth surface' by itself cannot develop. For developing it, it
has to be brought on the surface and separated from the crust of the
mother earth and that can be done by mining operation for winning these
minerals. Development of mineral as envisaged by Section 18 of the Act
and even by Entry 50 of list II of the Seventh Schedule of the Constitution,
necessarily would mean extraction of mineral out of the bowels of earth or
E from crust of earth by mining operations. Therefore, the term development
of minerals has a direct linkage with mining operation. Without that
minerals cannot develop by themselves. Mineral in ordinary and common
meaning is comprehensive term including every description of stone and
rock deposit whether containing metallic or non-metallic substance. The
F word mineral in popular sense means those inorganic constituents of the
·earth's crust which are commonly obtained by mining or other process for
bringing to the surface for profit. Minerals hidden in the bowel of the earth
by themselves cannot yield profit to anyone and they become minerals
when they are brought on the surface of the earth by mining operations.
Regulation of mines and development of minerals are interconnected
G concepts. Therefore, impugned notification cannot be said to be ultra virus
of Section 9(2) of the Act. [785-H, 786-B-G, 787-B]

5.1 The concept of colourable legislation has a well defined connota-
tion so far as parent legislation is concerned. If the legislation trespasses
H on a field not reserved for it under the relevant entry of the Seventh
STATEv. MAHALAXMIFABRICMiLLS 763

Schedule in can be said to be a co~ourable legislation meaning thereby it A
purports to get covered by an entry does not give legislative competence to
the legislature concerned to enact such a law. [788-B]

5.2. In the strict sense, there is no question of the said Notification
being a piece of colourable legislation touchiiig upon the power of some
other authority functioning under any other p.-ovision of delegated legis- B
lation. Even in cases of delegated legislation, there are well defined limita-
tions beyond which if such an exercise projects itself, it would become ultra
vires the provision permitting such an exercise. [789-B]

Federation of Hotel and Restaurant v. Union of India and others, AIR C
(1990) SC 1637, relied on.

6.1 The motive of legislature or for that matter that of the delegate
in exercising delegated legislative function for enacting a provision within
its competence cannot be considered to be in any way having any relevant
nexus to the efficacy of the product of such an exercise. The mineral D
belongs to the States, and so, if the Central Government has taken into
consideration the fact that the states, revenues are required to be re-
compensated on account of the loss suffered by them in their abortive
efforts to escalate the royalty, it cannot be considered to be an irrelevant
consideration. It clearly appeared that after 10 years from 1981 during E
which the royalty rates remained static there was a crying need of the day
for the Central Government to exercise its power under Section 9(3) and
to revise upward the royalty rates in conformity with the rising prices of
the minerals alround and for which there was a strong representation by
the various State Governments to the Central Government. Therefore, it
cannot be held that the impugned Notification was colourable device and F
was issued for extraneous purpose. [792-B-E]

6.2 The exercise of delegated power can be challenged on the ground
that it is highly arbitrary, irrational and confiscatory in nature and would
not stand the test or Articles 14 and 19(1)(g). [792-G]
G
6.3 In the instant case, the writ petitioners had led no evidence to
show as to how this escalation of rates for different types of coal extracted
by the lessee of mines had adversely affected their business or that they
were thrown out of business because of such heavy burden of escalated
royalty. It was not the case of any of the writ petitioners that their mining H
764 SU~REME COURT REPORTS [1995] 1 S.C.R.

A operations had to be closed down because of such high ra~es of royalty as
enhanced by the impugned Notification. Also there was nothing _on record
to show whether the burden of this enhanced rates of royalty was borne
only by the lessees of the mines who had extracted the minerals and had
not passed on to the customers by adding it to the price of coal. As all
B these are questions of facts there should be clear pleading and proof. There
was no such material on the record from which any decision could be
rendered. The original writ petitioners have failed to show how the en-
hanced rates of royalty as per the impugned Notification have become
unreasonable confiscatory in nature. [793-A-C]

C Orissa Cement Limited v. State of Orissa, AIR (1991) SC 16741, relied
on.

M/s. International Tourist Corporation and Ors. etc. v. State of Haryana
and Others, State of U.P. and Ors., [1981]2 SCC 318; State of Mysore and Ors;
v. M/s. D. Cawasji and Co. and Ors., [1971] 2 SCR 799; H.R.S. Mwthy v.
D Collector of Chittor, [1964] 6 SCR666; Dr. Shanti Saroop Shamia and another
v. State of Punjab and others, AIR (1969) P and H 79, Saurashtra Cement and
Cf!emical Industries Limited, Ranavav v. Union of India, AIR (1979) Gujarat
180; Laxmi NarayanAgarwalla and other etc. v. State of Orissa and others, AIR
[1983] Orissa 210, Surajdin Laxmanlal v; State of M.P. Nagpur and Others,
E AIR (1960) M.P. 129 and D.K Trivedi and Sons and Ors. etc. etc. v. State of
Gujarat and Ors. etc. etc., [1986] 1 SCR479, referred to.

CIVIL APPELLATE JURISDICTION : Civil AppeaCNo. 275 of
1994. Etc. Etc.

F From the Judgment and Order dated 17.12.93 of the Madhya
Pradesh High Court in M.A. No. 10 of 1993.

D.P. Gupta, Solicitor General, P.P. Rao Dr. Shankar Ghosh,
P.Chidambaram, Soli J. Soral:Jjee, G.L. Sanghi, S.K. Dholakia, R.K. Jain,
G.Ramaswamy, S.K. Agnihotri, Sakesh Kumar, Ashok Kumar Singh,
G Deepak Dhingra, Gautam Khaitan for the O.P. Khaitan and Co., M.L.
Jaiswal, Vivek Gambir, D.A. Dave, R. N. Karanjawala, P;K. Mullick for
Ms. M. Karanjawala, Anand Prasad, U.A. Rana, Rajiv Tyagi for Gagrat
and Co., M.L. Lahoty, Prem Sunder Jha~ Ms. Shipra Khanzanchi, Pallav
Shisodia, Ravinder Narain, D.N. Mishra, Ms. Punit Singh for JBD and
H Co., K.N. Raval, Mukµl Mudgal, Praveen Kumar, Virender Kaushal, R.K.
STATEv. MAHAI.,AXMI FABRIC MILLS [MAJMUDAR, J.] 765
'
Khanna, Ajay Bhalla, for R.P. Singh, Amitabh Verma for Ashok Mathur, A
-.. ). Pramod. Swarup, B.B. Singh, Ms. Rani Chhabra, Jana Kalan Das and ·
Ashok K. Mahajan for the appearing parties.

The Judgment of the Court was delivered by

MAJMUDAR, J. Leave granted in both the petitions. B

Two main questions are involved in these four appeals, namely
\. ~- whether Section 9(3) of the Mines and Minerals (Regulation & D~velop-
ment) Act, 1957, (hereinafter referred to as 'the Act') is ultra vires the
Constitution and secondly whether the Notification dated 1st August 1991 c
issued by the Central Government under Section 9(3) of the Act is ultra
vires, illegal and inoperative in law. On these common questions we have
heard learned counsel for the contesting parties and are, therefore, dispos-
ing of these appeals by this common judgment.

A A few relevant facts -leading to these cases may be sta_ted at the D
';>-- outset. Appellants in C.A. Nos. 275/94 and 276/94 being State pf M.P. and
Union of India respectively, were respondents before the High Court in
Special Civil Miscellaneous Petition No. 10/93. The respondents in these
appeals were the original writ petitioners in the High Court. These respon-
dents are purchasers of coal from Coal India Ltd. which was respondent E
No. 3 in writ petition. The writ petitioners complained that the Notification
dated 1st August, 1991 issued by the Union of India fixing new rates of
royalty on various varities of coal was illegal and inoperative 1n law on
various grounds, that before 1.8.1991 royalty was payable at the rate of Rs.
6.50 per ton vide earlier Notification but the same was sought to be
F
increased to Rs. 120 per ton by the new Notification. Since the said
Notification was issued under Section 9(3) of the Act, it was submitted that
the said provision confers unguided, unchannelized and arbitrary discretion
to the Central Government to increase ~he rates of royalty to any higher
t amount and as no guidelines were provided for effecting the said increases
either under this Section or elsewhere in the Act, the Section itself is an G
.1....l
instance of excessive delegation of essential legislative power and hence it
':"as void. T.hat royalty on various varieties of coal was fixed in the year 1981
vide earlier Notification issued by the Central Government under Section
9(3). Proviso to Section 9(3) permits revision of the rates of royalty once
during every three years. In the year 1982, several coal producing States H
766 SUPREME COURT REPORTS [1995] 1 S.C.R.
I

A imposed coal development cess and starting receiving revenue for effecting
"aevelopment of their mining areas, till they were challenged by consumers
of coal by ·filing several writ petitions in the High Courts. The controversy
ultimately came to be decided by this Court in Orissa Cement Limited v.
State of 01issa AIR (1991) SC 1674, whereby such cess was held to be
B invalid and beyond the legislative competence of the State Government. It
appears that soon after the aforesaid invalidation of the cess the coal
producing States were faced with problem of refunding the amounts ob-
tained by them that far. They, therefore, approached the Central Govern-
ment for help in the matter. In pursuance to the said approach, the
Parliament passed an Act validating the cess paid by the coal consumers
C upto the date of the Judgment by issuing an ordinance styled as 'The Cess
& Other Taxes on Minerals Validation Ordinance, 1992'. We are not
concerned with the said Ordinance and the subsequent Act in the present
proceedings. It appears that since the State Government had suffered
financial losses because of the invalidation of the cess, they also ap-
D proached the Central Government for help in the matter. As- a conse-
quence thereof, a working group was constituted in this behalf. The said
working group suggested an increase in the royalty to the extent of Rs. 70
per ton of the coal. The working group also found sufficient justification
for compensating the coal producing Staies to the extent of 100 per cent
E of the loss caused by the aforesaid judgment of this Court. Since the
recommendation was accepted by the Central Government, the impugned
Notification was issued by the Central Government. According to the writ
petitioners before the High Court, the increase in the rates of royalty
pursuant to the Notification was to the extent of 400 per cent to 2000 per
cent as compared to the royalty fixed in 1981 on various varieties of coal.
F It was further contended before the High Court by the writ petitioners that
the royalty fixed in the impugned Notification was payable to the concerned
State Governments by the coal companies. The coal companies passed on
this burden to their customers and showed this amount clearly and specifi-
cally in the bills issued by them. The coal companies have no objection to
G the Notification and are supporting the Central Government in this behalf.
The purchasers being consumers of coal were the affected .. - . •
parties
I
who
challenge:d the said Notification. About 60 petitions whe filed.before the
M.P. High Court by various consumers of coal. The-.Migh Court heard
learned CO!lnsel for all the respective parties. The Division Bench by its
H judgment dated 17th December, 1993 took the view that Section 9(3) of
STATEv. MAHALAXMifiABRICMILLS [MAJMUDAR,J.] 767

the Act was not invalid or illegal on any ground. However, .so far as A
impugned Notification on Section 9(3) was concerned, the High Court was
of the opinion that the said Notification was lacking in bona /ides and as
it was issued for meeting the financial deficiency suffered by States 01!
account of the judgment of this Court in O;issa Cement case, (supra) it wa~
outside the scope of Section 9(3) of the Act. Having reached that coir-
B
clusion, the Division Bench of the High Court quashed the impugned
Notification dated 1.8.91 but so far as the question of refund was con-
cerned, the High Court took the view that no direction for refund of any
amount could be issued as the burden of enhanced royalty was already
passed on to the customers by the manufacturers. Accordingly, the writ
petition was partly allowed. This order of the Division Bench dated c
17.12.93 is brought in challenge by the State of Madhya Pradesh by filing
C.A. No. 275/94 after obtaining special leaveing to appeal against the said
order from this Court. The Union of India has also challenged the very
same order in C.A. No. 276/94 after obtaining special leave. So far as
Special leave petition No. 8190/94 is concerned, it is filed by M/s. Birla Jute D
& Industries Ltd., one of the consumers of coal, which has also felt
aggrieved by the hike in royalty of coal as imposed by the impugned
Notification. It raised the very same contention in the High Court by way
of Misc. Civil Case No. 833/93. The writ petition filed by M/s. Birla Jute
Industries Ltd., was also partly, allowed by the High Court following its
order dated 17.12.93. By the order dated 28.1.94 it was held that the
E
petitioner therein was entitled to the same benefit on the same lines as was
available to the writ petitioners in matter decided on 17.12.93. The
petitioner, M/s. Birla Jute Industries Ltd., by special leave has contended
that the High Court was in error in not granting refund of the illegally
collected royalty as impugned Notification was struck down by the High F
Court. In appeal pursuant to SLP(C) No. 3395/94, the State of M.P. has
brought in challenge a similar order passed by the High Court on 17.12.93
in Misc. Petition No. 7907/92.

There are number of other civil appeals arising from the similar G
orders passed in the said writ petitions. But as we have heard learned
counsel in these four matters, we are disposing of only these four matters
in the first instance by this judgment.

Learned Solicitor Gen,eral and Additional Solicitor General in sup- H
768 SUPREME COURT REPORTS [1995) 1 S.C.R.

A port of C.A. Nos.-275/9~, 276/94 and Civil Appeal arising out of SLP{C)
No. 3395/94, vehemently contended that the High Court was patently in
error in striking down the impugned Notification dated 1.8.91. It was
stlbmitted by .th,em that once this Court took the view in Orissa Cement
Company's case that royalty could not be imposed by States, that it was
B · within the domain of the Central legislature in view of the Entry 54 of List
1 of Schedule VII of the Constitution and when the Parliament nad already
occupied the field pertaining to regulation and development of mines and
minerals in the country by enacting the Act in 1957, if the rates of royalty
were to be increased, it was· only the Central Government which could
exercise power under Section 9(3) of the Act and as the royalty had to be
C paid to the States, there was nothing wrong in issuing the impugned
Notification under which increased rates of royalty would be made avail-
able to the concerned State. Equally, there was nothing wrong in Section
9(3) which enough guidance to the Central Government for issuing such
Notification and that such Notification could not be said to be ultra vires
D or illegal or unconstitt'.itibnal as wrongly held by· the High Court. On the
other othcer hand, Mr. Sanghi, senior counsel appearing for the respon-
dents, submitted that section 9(3) of the Act was a piece of excessive
delegation of legislative power of Parliament, that it laid down no
guidelines for the Central Government to follow for increasing the rates of
E royalty. That even otherwise as it sought to tax mineral rights, the said
Section was beyond the legislative competence of the Parliament as such
legislation would be covered by Entry .50 of the List 2 of the Vllth
Schedule. It was next contended by Shri Sanghi that the impugned Notifica-
tion enhancing the royalty by almost 200 per cent .was ultra vires the
purpose and object of the Act as the purpose of the Notification was to
F increase the revenues · of the State Governments in whose territories the
concerned mines were situated and as it had nothing to do with the
development of the mines, the Notification was beyond the scope and ambit
of Section 9(3) of the Act. Mr. Sorabjee, learned senior counsel appearing
for the appellant, M/s. Birla Industries Ltd. adopted the arguments of Mr.
G Sanghi and further submitted that the Notification issued under Section J..J :
9(3) must have direct nexus with royalty which would be a payment made
for the privilege of removing the minerals and it had to be charged on the
quantity removed. That no Notification under Section 9(3) could be issued
by the Central Government only for increasing the general revenues of the
States, that such a purpose is outside the ~cope of Section 9(3) and in
H I
STATEv. MAHALAXMIFABRICMILLS [MATMUDAR,J:] 769 ·

substance by the impugned
.
Notification, the Central Government .Ma
. I
A
imposed a tax for the purpose of swelling the revenues of the States and
not for the purpose of increasing royalty on any permissible ground which
may be within the scope of Section 9(3) of the Act. Mr. Dholakia, learned
senior counsel appearing for Respondent No. 1 in Civil Appeal 1994/95
arising out of SLP(C) No. 3395/94, broadly supported the aforesaid con-
B
tentions of Shri Sanghi and Shri Sorabjee and further contended that
Section 9 of the Act has nothing to do with mineral development and,
therefore, enactment of Section 9 could not be supported under Entry 54
of the Union List but would be covered by the sweep of Entry 50 of the
State List. Mr. Chidambaram, learned senior counsel, appearing for some
of the original writ petitioners befqre the High Court in companion mat- c
ters, also adopted the arguments of Shri Sanghi and Shri Sorabjee and
further contended that as laid down by this Court in Indian Cement case
(supra) royalty is a tax, and there was no Entry in the Union List which
could support such a tax and it would clearly fall within the scope and
ambit of Entry 50 of the State List. He further contended that every tax D
should have a tax entry and as there was no specific entry regarding
imposition of tax by way of royalty in the Union List such tax could be
covered by Entry 50 of the State list, and so, impugned Section 9(3) i~
1
·'beyond the legislative power of the Parliament.
// .
Mr. ~swamy, learned senior counsel, who was permitted to
E
intervene SJIPported the contention of the aforesaid learned counsel for the
writ petitioners and further contended that the impugned Notification,
even if assumed partly to be based on relevant grounds, at least partly was
not based on relevant grounds as it was not wholly issued for the purpose
of development of minerals but for the purpose of development of State F
coffers and, therefore, the entire Notification has to. be struck down as
invalid and incompetent. An alien purpose cannot be mixed with the
relevant purpose for exercising any statutory power even including the
power to exercise delegated legislative function.
G
In the light of the aforesaid rival contentions, the following points
arise for our determination :

1. Whether Section 9(3) of the Act is ultra vires the Constitution
and/or is illegal on any other ground? H
770 SUPREME COURT REPORTS [1995] 1 S.C.R.

A 2. Whether theimpugned Notification is beyond scope of Section ..._ ...,_..
9(3j of the Act and, therefore, incompetent and invalid?

h. Whether the impugned Notification is a piece of colourable exer-
cise of power?

B/ 4. Whether the impugned Notification is arbitrary and confiscatory
in nature?

As discussed hereinafter, answers to the above points are as follows:

1st In the negative;
c
2nd In the negative;

3rd In the negative; and

D 4th In the negative,

We shall deal with these points seriatim.

Point No.I
E So far as vires of Section 9 are concerned, it must be kept in view
that a Constitution Bench of this Court has held in the case Baijnath v.
State of Bihar, AIR 1970 SC 1436 that the Act is enacted by Parliament
under Entry 54 of the Union list. In this connection the Constitution Bench
speaking through Hidayatullah CJ., had made the following observations:
F
"Entry 54 ·of the Union List speaks both of Regulation of mines
and minerals development and Entry 23 of State list is subject to
Entry 54 of Union list. It is open to Parliament to declare that it
is expedient in the public interest that the control should vest in
Central Government. To what extent such a declaration can go is )d
G for Parliament to determine and this must be commensurate with
public interest. Once this declaration is made and the extent laid
down, the subject of legislation to the extent laid down becomes
an exclusive subject for legislation by Parliament. Any legislation
by the State after such declaration and trenching upon the field
H disclosed in the declaration must ~ecessarily be unconstitutional
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 771

because that field is abstracted from the legislative competence of A
the State legislature." ·

Once it is held that the entire Act is within the exclusive domain of
legislative power of the Parliament under Entry 54 of the Union list it
becomes obvious that Section 9 which is a part and parcel of the same Act
would also fall within Entry 54 which deals with regulation of mines and B
development of minerals and for which a declaration is already found in
Section 2 of the Act to the effect that such regulation of mines and minerals
development under control of the Union is expedient in public interest. We
may now turn to Section 9 which reads as under :
c
"9. Royalties in respect of mining leases :

(1) The holder of a mining lease granted before the commence-
ment of this Act shall, notwithstanding anything contained in
instrument of lease or in any law in force at such commencement,
pay royalty in respect of any mineral removed or consumed by him D
or by his agent, manager, employee, contractor or sub-lessee from
the leased area after such commencement at the rate for the time
being specified in the Second Schedule in respect of that mineral.

(2) The holder of a mining lease granted on or after the commen- E
cement or this Act shall pay royalty in respect of any mineral
removed or consumed by him or by his agent, manager, ·em.pkiyee,
contractor or sub-lessee from the leased area at the rate for the
time being specified in the Second Schedule in respect of that
.. mineral.
F
(2-A) The holder of a mining lease, whether granted before or
after commen4'.ement of the Mines and Minerals (Regulation &
Development) Amendment Act, 1972, (56 of 1972) shall not be
liable to pay any royalty in respect of any coal consumed by a
workman engaged in a colliery provided that such consumption by G
the workman does not exceed one-third of a tonne per month.

(3) The Central Government may, by notification in the official
Gazette, amend the Second Schedule so as to enhance or reduce
the rate at which royalty shall be payable in respect of any mineral
with effect from such date as may be specified in the notification. H
772 SUPREME COURT REPORTS [1995] 1 S.C.R.

A Provided that the Central Government shall not enhance the
rate of royalty in respect of any mineral more than once during
any period of_ (Three years)."

It becomes obvious that Parliament while enacting Section 9 has
B already laid down the rates of royalty to be charged on the removal and
consumption of mineral by any lessee of mining lease, his agent or manager
or sub-lessee, from the leased area. The rates of royalty are scheduled in
the Act. So far as coal is concerned it is by Entry 11 of the Second
Schedule. Separate rates of royalty are prescribed for different types of
C coal. However, the Parliament felt that these rates of royalty may be
required to be enhanced or reduced from time to time due to fall of money
value with the passage of time or vice versa. For that very purpose the
Central Government as per section 9(3) is permitted by Parfuim:ent to
·'
amend the second Schedule by Notification to be published in official
Gazette from time to time subject to the proviso that the Central Govern-
D ment shall not enhance mineral and mines royalty for more than once
during the period of three years.. The power conferred upon the Central
Government under Section 9(3) is by way of delegated legislative power.
· Vires of Section 9(3) was challenged on twin grounds by Shri Sanghi,
learned senior counsel. In the first instance he submitted that if royalty is
E a tax, there should be a clear entry in the Union list permitting the
Parliament to impose such a tax. He placed reliance on M/s. International
Tourist Corporation & Ors., Avtar Singh & Ors. Namaskar Bus Service and
Other v. State of Haryana & Others, State of U.P. & Others, [1981] 2 SC_C
318 and State of Mysore & Others, v. M/s. D. Cawasji & Co. & Others, [1971]
F 2 SCR 799, and submitted that there is no such entry regarding tax on ..
royalty in the Union list; on the contrary, tax on mineral rights is found in
Entry 50 of the State list. Therefore, Mr. Sanghi submitted that legislative
competence in connection with tax on mineral rights would be exclusively
of State legislature and not of the Parliament and, therefore, Section 9(3)
is beyond the legislative competence of the Parliament. The second leg of
challenge was that in any case by section 9(3) the Parliament has delegated
i.ts legisfa.tive power in favour of the Central Government by way of
excessive delegation and no guidelines are found in the Section as to on
what basis the Central Government once in three years can revise the
royalty rates and what would be the relevant criteria for the said exercise.
H As· tlie Section is silent on these vital aspects, it has to be held to be
. STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 773

suffering
.
from the vice of excessive delegation of legislative power.
. A
In our considered opinion there is no substance in either of the twin
contentions for challenging vires of Section 9(3). So far as competence to
enact Section 9 is concerned, the question is no longer res integra. It is
,_-covered by the Constitution Bench decision of this Court in the case India
Cement Ltd. & Others v. State of Tamil Nadu & Others, [1990] 1 SCC 12. B
In that decision the Constitution bench speaking through Sabyasachi Muk-
herji J ., as he then was, expressly rules that royalty is a tax and for imposing
such royalty the State legislature will have no power under Entry 50 of the
Second list. Mr. Sanghi contended that strictly royalty cannot be said to
be a tax and to that extent the decision of the Constitution bench may C
appear to be erroneous. It is not possible to agree with this contention. In
paragraph 34 of the report the Constitution Bench has made the following
pertinent observations :

34. "In the aforesaid view of the matter, we are of the opinion that
royalty is a t~ and as such a cess on royalty being a tax on royalty, D
is beyond the competence of the State legislature because Section
9 of the Central Act covers the field and the State legislature is
denuded of its competence under Entry 23 of List II. In any event,
we are of the opinion that cess on royalty cannot be sustained
under. Entry 49 of List II as being a tax on land. Royalty on niineral. E
rights is not a tax on land but a payment for the user of land."

It is true that in paragraph 13 of the report the Constitution Bench
noted the Judgments of Rajasthan, Punjab and Gujarat High Courts which
had taken the view that royalry. was not a tax and it is equally trqe that it
is not expressly· mentioned in the judgm.ent of the Constitution Bench thaJ F
these judgments were erroneous or were required to be over ruled. How-
ever on a conjoint reading of paras 31 and 34 of the report, it becomes '
obvious that the view that royalty is not a tax as expressed by these High
Courts did not find favour with the Constitution Bench of this Court which
took a contrary view. Therefore, these judgments necessarily stood over G
ruled, on, this aspect. It is true that in the last line of paragraph 34 it is
., mentioned that royalty on mineral rights is not a tax on land but a payment
for use of land but these observations are in connection with Entry 49 List
II which deals with a tax on land. But so far as nature of royalty is
concerned it is clearly rules to be a tax by the Constitution Bench, and that
is the reason why the Constitution Bench reached the conclusion that any H ·
774 SUPREME COURT REPORTS [1995] 1 S.C.R.
...._ \.
A cess On the royalty Would be a tax. It Would be beyond legislative COm··
petence of the State legislature as Entry 50 in List II would be of on avail
once the Parliament has occupied the field by enacting the Ac~, especially
Section 9 thereof. The view of the Constitution Bench that royalty is a tax
as found in paragraph 34 of the report can a~so be supported from other
paragraphs of the report. In paragraph 23 of the report while agreeing with
B Mr. Nariman that royalty which is indirectly ~onnected with land cannot
be said to be a tax directly no land as a unit, it has been observed that no
+~
tax can be levied· or leviable if no mining activities are carried on. Hence
it is manifest that is not related to land as a unit which is the only method
of valuation of land under Entry 49 of List II but is relatable to minerals
extracted. Royalty is payable on a proportion of the minerals extracted.
c These observations in paragraph 23 clearly indicates that in view of the
Constitution Bench, royalty was a tax which had a nexus with mining
activities meaning thereby it was a tax on mineral rights. Similarly in para
27 of the report, the Constitution Bench noted with approval of the

·n
decision of the Division Bench of the High Court of Mysore in Lax-
minarayana Mining Co., Bangalore v. Taluk Dev. Board, AIR (1972) Mysore
299. In that case the Court was concerned with the Mysore Village
~ •
Panchayats and Local Boards Act, 1959. Under the said Act the Board had
sought to levy tax on mining activities carried on by the persons holding
mineral concessions. The Mysore Court had observed that once the Par-
liament made a declaration by law that it is expedient in the public interest
E to make regulation of mines and minerals development under the control
of the Union to the extent to which such regulation and development is
undertaken by the law made by the Parliament, the power of the Stat7
legislature under entries 23 and 50 of List II got denuded. It would,
therefore, be not said that even after passing of the Central Act, the State
legislature by enacting Section 143 of the Act could confer power on the
..,....
..
F
Taluk Board to levy tax on the mining activities carried on by the persons
holding mineral concessions. The Constitution Bench then noted that at
page 306 of the report of Mysore case it was held that royalty fixed under
Section 9 of the Mines and Minerals Act was really a tax. It must be kept
in view that this decision of the Mysore High Court was noticed by the
.J...J
G Constitution Bench and was not dissented from. On the other hand it got
approved by it. It must, therefore, be held that royalty imposed has to be
. treated .a~ ta~ as ruled by the Constitution Bench of. this Court in India
Cement Case (supra). It is no doubt true that in the later decision of this
Court in Orissa Cement Ltd. & Ors. etc. etc. v. State of Orissa & Ors. etc.
etc., [1991] 2 SCR 105, a three-Judge Bench of this Court did not go into
H
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 775

the question whether there was any typographical error in the judgmwt of A
the Constitution Bench as found in para 34 of its report when it held that ~
royalty is a tax. But in view of what we have discussed above it becomes ·
absolutely clear that there was no typographical error but on the contrary
the said conclusion logically flew from the earlier paragraphs of the Judg-
ment referred to by us hereinabove.
B
Once the conclusion is reached that royalty is a tax, the next question
arises whether Entry 50 of the State list can at all be resorted to for
imposing such a tax by the State legislature. Even that question is fully
covered against the writ petitioners by the very same Constitution Bench
Judgment of India Cement & Ors. In para 24 of the report it has been C
observed while repelling the contention of Mr. Krishnamurthy Iyer for the
State of Timal Nadu that Entry 50 in List II of the Seventh Schedule can
be of any avail, the Constitution Bench noted that Entry 23 of List II deals
with regulation of mines and minerals development subject to provision of
List I with respect to regulation and development under the control of the
Union and Entry 54 in List I deals with regulation of mines and minerals D
under the control of Union declared by the Parliament by law to be
expedient in public interest. Thereafter it was observed that even if
minerals are part of the State list they are treated separately and, there-
fore, the principle that the specific excludes the general must be applied.
In this connection reference was made to the case of H.R.S. Murthy v. E
Collector of Chittor [1964] 6 SCR 666, where it was held that cess on
minerals would be covered by Entry 49 of List IL The Constitution Bench
with regard to H.R.S. Murthy's case observed in Paragraphs 29 and 30 of
India Cement Ltd. case that attention of the Court was not invited to
provisions .of Mines and Minerals (Development & Regulation) Act, 1957
and Section 9(3) thereof. Section 9(3) of the Act in terms States that F
royalties payable under the llnd Schedule of the Act shall not be enhanced
more than 9nce during the period of four years. It is, therefore, a clear bar
on th'e" St~t; lf(gislature taxing royalty so as to in fact amend Ilnd Schedule
of the Central -9\ct. As seen earlier in paragraph 32 of the report in India
Cement case, it has been clearly mentioned that in view of the express G
provisions of Mines & Minerals Act. 1957, Entry 50 cannot be of any
¥sistance to sustain such legislation by the State. Oza J. in his concurring
judgment has highlighted one additional dimension of the matter in para
40 of the report. It has been observed by Oza., that it is no doubt true that
min~ral is extracted from the land and is available but it could only be
H
776 SUPREME COURT REPORTS [1995) 1 S.C.R.

A extracted if there are _three things :

(1) land from which mineral would be extracted. (2) capitttlf;for
providing machinery, instruments and other requirements, and (3) labour.
It is, therefore, clear that unit of charge of royalty is not only land but land -
+ labour + capital. It is also clear that if royalty is a tax or an imposition
B or a lery, it is not on land alone but it is a levy or a tax on mineral, including
land, labour and capital employed in extraction of the mineral. It is
therefore clear that royalty if imposed by the Parfounent could only be a
tax not only on land but also on these three things stated above~

C In view of the decision of Constitution Bench it is no longer open to
the writ petitioners to submit that Entry 50 of List II can still be available
to State legislature. It is easy to visualise that once the Parliament has
occupied the field in connection with regulation of mines and minerals
development in the country and when the Parliament declares that it is
D expedient in the public interest so to do, Entry 23 of the State list regarding
regulation of mines and minerals development would be of no avail to the
State legislature as Entry 23 List II is subject to the provision of 14,st I, nor
will Entry 50 of the State list can be of any assistance to the State
authorities. In short, both the entries will be out of way in enacting
appropriate legislation imposing the rates of royalty to be paid by those
E who extract minerals in the._country. Once these Entries are out of picture,
it is Entry 54 in the Union list which will operate and the imposition of tax
on minerals extracted would be squarely got covered by Entry 54 of the
Union list. To recapitulate, as the entire Act has been upheid by this Court
_in its earlier decisions to which we have made reference in the light of
F Entry 54 of the Union list, Section 9 being part and parcel thereof cannot
be out of the sweep of Entry 54. However, even assuming that tliere should
be a specific taxing entry regarding taxing of royalty on mineral rights which
can sustain such legislation under the said entry, being a topic of legislative
power, we find that there is no such specific entry in Union list nor in State
• list or concurrent list which can be of any assistance in this connection.
G Entry 50 in the State list is out of picture as we have seen earlier. In these
circumstances the State legislature cannot rely on any entry in the State list
or concurrent list for imposing such a ,tax once a valid legislation by
Parliament under Entry 54 of the Union list is holding the field. In \~he
alternative imposition of such hybrid tax on mines + capital + Labour
H would be covered by residuary Entry 97 of the Union list which empowers
STATEv. MAHALAXMIFABRICMILLS [MAJMUDAR,J.] 777

the parliament to enact laws on topics not covered by other specific entries A
in Llst II or List III. This conclusion squarely flows from the obserVations
made by Oza J., in his concurring judgment in India Cement case. It must,
therefore, be held that Section 9 of the Act is within the legislative
competence of the parliament both under Entry 54 of the Union list as well
as Entry 97 thereof. The first ground of attack on Section 9 by Shri Sanghi B
is thus devoid of substance and is, therefore, rejected.

Mr. Sanghi next submitted that Section 9(3) is a piece of delegated
legislation and it should not suffer from the vice of exc~ssive delegation.
No exception can be taken to this submission of Shri Sanghi. Let us try to
\ see whether Section 9(3) suffers from any such vice. It must be kept in view C
'·that Parliament itself has laid down the rates of royalty in the Ilnd Schedule
of the Act. However, the Parliament felt that with passage of time these
"rates of royalty may be to be suitably modified. This is obvious as the Act
was enacted years back in 1957. The purchasing power of rupee went on
falling year after year and decade after decade. Therefore, instead of D
Parliament itself every time bP-ing required to increase the rates, it is left
to the Central Government to do so but it imposed certain fetters on the
power of the Central Government. Firstly,. the proviso of Section 9(3)
clearly lays down that such enhancement should not be made before the
end of four years and now after amendment before the end of three years.
This itself indicates a guideline laid down by the Parliament that the rate E
of inflation and fall of money value of the rupee should be considered once
in three years and that the royalty 'should be enhanced only once in three
years. The second guideline in Sect~o11 9(3) is pertaining to the very topic
of delegation of such legislative pow.er. The Central Government has to
keep in view the original rates mentioned in Ilnd Schedule in connection p
with different types of minerals and to suggest suitable enhancement once
in three ye~ depending upon the requirements of the States concerned
for whom the royalty is meant. It is to be paid by hclder of mining lease
who extracts minerals. If a person is merely in occupation of land which:
contains mines and minerals, he is not liable to pay any royalty but it is
only when he holds a mining lease and by virtue of that extracts one or G
more mirierals then only he is called upon to pay royalty to the State
Government as the lease is in respect of the land in which minerals vest in
the State Government. This e.xercise is to be carried out keeping in view
the very. object and purpose of the Act, namely, regulation of mines and
develop:rµent of minerals which are the catch words of Entry 54 of List II H
778 SUPREME COURT REPORTS [1995] 1 S.C.R.

A under which the Act is enacted. Therefore, fixation of royalty should have
a direct nexus with the _minerals through out the country on uniform pattern
so that acti~ty of winning the minerals for the benefit of the lessee of sue~
mining leases in the first instance and ultimately for the economy as a whole
should not get in any way frustrated. There are sufficient guidelines from
B the Act to enable the Central Government to exercise its delegated legis-
lative function in a just and proper manner keeping in view the uniform
development of minerals through out the country. In this connection it is
also necessary to keep in view Section 28 sub-section (1) which provides
that every rule or notification made by the Central Government be placed
before each House of Parliament for a total period of 30 days in one
C session or two more successive session and if both Houses agree in making
any modification in the rule or notification or both Houses agree that the
rule or Notification should not be made, the rule or Notification shall
thereafter have effect only in such modified form or be of no effect, as the
case may be. When such a safety valve is provided it cannot be said that
D the exercise of delegated legislative power by Central Government in the
first instance under section 9(3) would suffer from any excessive delegation
of legislative power or effacement of legislative power of the Parliament.

In our view the High Court correctly held tliat Section 9(3) does not
suffer from any· excessive delegation of legislative power. Before parting
E with t4is discussion we may deal with one more submission of Shri Sanghi.
He submitted that earlier the legislation had itself provided in Section 9(3)
a ceiling for enhancement of rates of royalty and to that extent there was
a safety valve or guideline by Parliament. But after amendment this ceiling
is given a gobye and hence the Section has become arbitrary. It is not
F possible to agree with this contention for the obvious reason that whatever
enhanced rate of royalty is fixed by Notification by the Central Government
under Section 9(3), it has got to- filtered through the process of Section
28(1) and if the Parliament finds the proposed hike to be uncalled for it
may veto it out. There are sufficient guidelines as to for what purpose the
royalty can be enhanced as discussed hereinabove, once .in three years. In
G this connection we may profitably refer to the decision of this Court in the
Case N:K. Papiah & Sons v. The Excise Commissioner and another, AIR
(1975) SC 1007. In that case this Court was concerned with the question
of consitutional validity of Section 22 of Karnataka Excise Act. Section 22
conferred power on the Government to fix rates of excise duty. There was
.H no guideline in Section 22 about upper· limit of the duty which could be
STATEv. MAHALAXMI FABRIC MILLS [MATMUDAR, J.] 779

fixed. Repelling the contention that this had resulted in excessive delegated A
power, Mathew J. speaking for this Court held that power conferred on
the Government by Section 22 was valid. From the mere fact that it is not
certain whether the preamble of the Act gives any guidance for fixing the
rate of excise duty, it cannot be said that the legislature has no control .over
the delegate; that requirement of laying of rules before the legislature is
control over delegated legislation. The legislature may also retain its con-
B
trol over its deie·gate by exercising its power of repeal.

In the case of Delhi Cloth and General Mills Co. Ltd., M/s. AlVind
Mills Ltd. etc. etc. v. Union of India & Others, etc. etc., AIR (1983) SC 937,
another Bench of this Court speaking through Desai J. held that the C
provision of Sections 58A and 642 of the Companies Act requiring every
rule enacted in exercise of the power conferred by it must be placed before
each House of Parliament for a period of 30 days and both Houses have
power to suggest modification in the proposed rules to check any trans-
.!., gression of permissible limits. of delegated legislation by the delegate, made D
.~ the challenge on the ground of excessive delegation unsustainable. In view
of the this settled legal position in cannot be held that Section 9(3) suffers
from any excessive delegation of legislative. power. There is full control of
parliament under Section 28 for checking such exercise of the delegate and
for correcting the same, if found necessary. The second ground canvassed
by Shri Sanghi for challenging the vires of Section 9(3) is also without any E
substance and stands rejected. Therefore, point no. 1 is answered in the
negative.

Point No. 2:
F
So far as this point is concerned, we have to see the background in
which the impugned Notification dated 1.8.1991 saw the light of the day.
After 1981 there was no enhancement of royalty though a clear power was
conferred on the Central Government by Section 9(3) to enhance the rates
of royalty at the end of every four years and then as amended after every
three years. Almost a decade had passed when the impugned Notification G
was ~ssued on 1.8.1991. In the meantime, at least on three occasions rates
of rpyalty as found in earlier Notification of 1981 of the Act could have
been enhanced by the Central Government in exercise of its power under
Section 9(3) but thaf was not done. That was because the S~ates themselves
who were the owners of the minerals and were entitled to receive the H
780 SUPREME COURT REPORTS [1995] 1 S.C.R.

A amounts of royalty on extracted minerals by _the concerned lessee tried to
help themselves by imposing various cesses on royalties by different legis-
lations. It is no doubt true that, that would swell the exchequer of the State
but the said exercise was undertaken with a view to obtain appropriate
rates of royalty commensurate with the price of the extracted minerals as
B charged from time to time by the lessees. This imposition of cesses by the
States on royalty as originally fixed by the Central Government under
Section 9(3) was frowned upon by this Court and was held to be beyond
the legislative competence of the State legislature. It is under these cir-
cumstances that the States requested the Centre t;·repair the damage or
loss to the State exchequer in the light of the decision of India Cement case
C (supra) and that is the reason why a study group to look into the matter
was formed by the Central Government in this connection. The report of
the study group clearly shows that rates of royalty as earlier enhance 1981
had not been, however, further enhanced for all these years and that in the
meantime attempts by the States to raise the rates of royalty by way of
D imposed cesses <;in royalty were found to be ultra vires the State legislature
and in these circumstances it was necessary to enh~nce the rates of royalty
on various types of coal. It is thereafter that the said Notification was issued
by the Central Goveinment invoking its power under Section 9(3). It was
vehemently contended by Mr. Sanghi, Mr. Sorabjee and Mr. Ramaswamy
th.ll.t the impugned Notification is beyond the scope of Section 9 of the Act
E as it has nothing to do with the development of minerals but it was issued
only for compensating the States who have suffei;ed loss because of striking
down of cesses imposed on royalty by this Court. Mr. Sorabjee invited our
attention to various decisions of High Courts and this Court for submitting
that royalty is levied on the minerals extracted by the holders of the mining
F leases. In the first instance he took us to the decision of Punjab in case Dr.
Shanti Saroop Shamia and Anther v. State of Punjab & Others, AIR (1969)
Punjab & Haryana 79, Gaurav J. in paragraph 14 of the report held that
royalty is not defined either in the Act or the Rules framed thereunder by
the Central or the State Government. Learned Judge has referred to what
is staed at page 895 of (Wharton's Law Lexicon (14th edition) in para 15
G to the following effect :

"royalty is payment to a patentee by agreement on every article
made according to his patent; or to an author by a publisher on
every copy of his book sold; or to the owner of minerals for the
H right of working the same on every ton or other weight raised."
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 781

The _Learned Judge also referred to various dictionary meanings of the A
term royalty. According to Stroud's Judicial Dictionary of Words and
Phrases (3rd Edition)

"In its secondary sense the word 'royalty' signifies, in mining leases,
that part of the reddendum, which is variabk and depends upon
the quantity of minerals gotten Att. Gen. Ontraio v. Mercer, (1883- B
8AC) 767 sup; see Hereon Greville Nugent v. Mackenzie (1900) AC
83, cited RENT; Listowel v. Gibbings, (1858-9) Ir CLR 223 Sup;
or the agreed payment to a patentee on every article made accord-
ing to the patent."
c
According to Majley and Whiteley's Law Dictionary (7th Edition) page 328
IS :

"A pro rata payment to a granter or lessor on the working of the
property leased, or otherwise on the profits of the grant or lease.
The word is specially used in reference to mines patents and D
copyrights."

-According to Prem's Judicial Dictionary (Volume IV) 1964 Edition, Page
1457:

"Royalty is inter alia, a c.harge by the owner of minerals from those
E
to whom he gives the concession to remove them, and the charge
is on production, the rate being fixed according to weight: Behm
Lal v. State of Rajasthan, AIR (1956) Raj 161."

According to Wharton's Law Lexicon royalties are payments which the F
Government may demand for the appropriation of minerals, timber or
other property belonging to the Government. Two important features of
royalty have to be noticed, they are, that the payment made for the privilege
of removing the articles is in proportion to the quantity removed and the
basis of the payment is an agreement. In para 22 learned Judge has
concluded that the ·word Royalty has a well recognised and defined mean- G
ing which means share of produce or profit paid to the owner of the land
for being granted privilege of producing minerals therefrom and excludes
the concept of fee simple title to minerals in place. The same meaning has
been given to the term royalty in the cases Saurashtra Cement & Chemical
Industries Ltd., Ranavav v. Union of India, AIR 1979 Gujarat 180; Lax.mi H
. 782 SUPREME COURT REPORTS (1995) 1 S.C.R.

A Narayan Agmwalla & Other~ etc. v. State of Olissa & Others, AIR (1983)
. Orissa 210 and Surajdin ~axmanlal v. State of M.P. Nagpur & Others, AIR
(1960) M.P. 129. Shri Sorabjee also took us through the decision in case
D.K. Tlivedi and Sons and Ors. etc. etc. v. State of Gujarat & Ors. Etc. Etc.,
(1986) 1 SCR 479, wherein at page 532 of the report the dictionary
B meanings as found in various dictionaries were noticed. Ultimately Madon
J. speaking for the ·court made the following observations at page 534 of
the report:

"In a mining lease the consideration usually moving from the lessee
to the lessor is the rent for the area leased (often called surface
c rent), dead rent and royalty. Since the mining lease confers upon
the lessee the right not merely to enjoy/the property as under an
.ordinary lease but also to extract $e1ials from the land and to
appropriate them for his own use or benefit, in addition to the
usual rent for the area demised, the lessee is required to pay a .
.~

certain amount in respect of the minerals extracted proportionate
D to the quantity so extracted. Such payment is called 'royalty'."

In the light of the aforesaid meaning of the term 'royalty' it was submitted
by Shri Sorabjee that the Central Government under Section 9(3) can
enhance the rates of royalty payable on the extracted minerals by the lessee
E and it is be paid to the lessor, the State concerned in whose territory/juris-
diction the mines are situated but the impugned Notification was issued in
exercise of the power not for developing mines but it is solely. issued for
the purpose of compensating the States excheq~ers for the los of revenue
suffered by them and that such a Notification had nothing to do with the
F development of :mlnerals and therefore, is beyond the scope and ambit of
Section 9(3). Same view was canvassed by learned counsel Shri Sanghi and
Shri Ramaswamy.

Having given our anxious consideration we find there is no substance
in this contention. The reasons are obvious. The legislature has entrusted
G the Central Goyernment with the power to enhance the rates of royalty
,.._
.. from tim~ to time. It is of course true that traditionally speaking royalty is
an amount which is paid i.mder contract of lease by the lessee to the lessor,
namely, the State Governments concerned and it is commensurate with
the quantity of minerals extracted. But we cannot lose sight of the fact that
H since 1981 such enhancement of royalty has not been done by the Central
STATEv. MAHALAXMIFABRICMILLS [MAJMUDAR,J.] 783

Government. Rates of royalty fixed before a deca~e, ·with the passage of A
time and fall in money value and increase in inflation would naturally
become illusory. Therefore, the States would legitimately claim for increas- ·
ing the rates of royalty. They unsuccessfully tried to do so themselves by
imposing cesses on royalty. In these circumstances, it was perfectly open
to the Central Government to exercise its power under Section 9(3) and B
enhance the rates of royalty so that loss to the States exchequer of the
amounts which otherwise would have been available to the States could be
compensated. It is n.ot that the States were otherwise not entitled to the ·
royalty amounts; but because of the operation of Section 9, the power of
the States to enhance the royalty get vested in the Cen~ral Government.
But once the rates are enhanced by the Central Government, the enhanced C
royalty was to be received by the State and same is to be recovered from
concerned lessee of minerals. In fact Mr. Sanghi was right when he con-
tended that there is no question of the royalty amounts being distributed
by the Central to the States as per Articles 268 and 269 of the Constitution.
That once royalty amounts are fixed by the Central Government under D
·:-- Section 9(3), the States automatically become entitled to receive the same
from lessees of minerals who are allowed to extract them on payment of
such amounts of royalty to the State which is the owner-lessor of these
minerals. Enhancement of rates or royalty cannot be said to have no nexus
with the development of minerals as contended by learned couusel for the
writ petitioners, only because the enhanced rates .of royalty are to go to E
swell the exchequers of concerned States. In the case of Orissa Cement
Limited, (supra) while interpreting Entry 50 in the light of Section 9 of the
Act, Ranganathan J. speaking for this Court has observed as wider :

- "To take up Entry 50 first, a perusal of Entry 50 would show.that p
the .competence of the State Legislature with respect thereto is
circumscribed by 'any limitations imposed by Parliament by law
relating to mineral development'. The M.M.R.D. Act 1957 is -
there can be no doubt about this, a law of Parliament relating to
mineral development. S.9 of the said Act empowers the Central
Government to fix, alter, enhance or reduce the rates of 'royalty G
payable in respect of minerals, removed from the land or consumed
by the lessee. Sub-Section (3) of Section 9 in terms states that the
royalties payable under the Second Schedule to the Act shall not
be enhanced more than once during a period of three years. India
Cement has held tha~ this is a clear bar on the state Legislature H
784 SUPREME COURT REPORTS [1995] 1 S.C.R.

A taxing the State Legislature taxing royalty so as, in effect to amend
the Second Schedule to the Central Act and that if the cess is taken
as a tax falling under Entry 50 it will be ultra vires in view of the
provisions of the Central Act."

B At page 168 of the said report while dealing with the topic of development
of minerals, Ranganathan J. examined that contention that Uhposition of
such cesses had no nexus with the development of mineral. Relying upon
the observations found in earlier judgment of this Court it was observed
that these observations establish on the one hand that the distinction sought
to be made between mineral development and mineral area development
C is ;:iot a real one as the two types of development are inextricably and
integrally interconnected and, on the other, that fees of the nature we are
concerned with, squarely fall within the scope of the provisions of the
Central Act. The object of Section 9 of the Central Act cannot be ignored.
The terms of Section 13 of the Central Act extracted earlier empower the
D Union to frame rules in regard to matters concerning roads and environ-
ment. Section 18(1) empowers the Central Government to take all such
steps may be necessary for the conservation and development of minerals
in India and for protection of environment. These in the very nature of
thing s cannot mean such amenities only in the mines but take in also the
~

areas leading to and all around the mines. The development of mineral
E areas is implicit in them. Section 25 implicity authorises the levy of rent,
royalty taxes and fees under the Act and the rules. The scope of the powers
thus conferred is very wide. The purpose of the Union control envisaged
by Entry 54 and the M.M.R.D. Act, 1957, is to provide for proper develop-

F
ment of mines and mineral areas and also to bring about a uniformity all
over the country in regard to the minerals specified in Schedule I in the
matter of royalties and, consequently, prices. Ranganathan J. agreed with
Mr. Bobde who appears for Central Government that prices of minerals
-
for exports were fixed and could not be escalated with the enhancement
of the royalties and that if different royalties were to be charged by
different States, their working would become impossible. There appeared
G to be force in this·: submission. As pointed out in India Cement case, the
Central Act bars an -enhancement of the royalty directly or indirectly,
e~cept by the Union and in the manner specified. by the 1957 Act.

It becomes, therefore, clear that enhancing uniformly rates of royalty
H for the entire country even though minerals might be extracted from
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 785

different State's territory is necessary for having uniform pattern of price A
qf minerals and that has a direct linkage with the development of minerals.
It is also to be kept in view that regulating the rates of royalty on extraction
of minerals has also on important role to play in opening up new mining
areas for winning minerals. In this connection we may refer to Section 18
of the Act which deals with mineral development. Sub-section (1) of B
Section 18 lays down that it shall be the duty of the Central Government
to take all such steps as may be necessary for the conservation and
systematic development of minerals in India for the protection of/nviron-
ment by preventing or controlling any pollution which may be caused by
prospecting or mining operation and for such purposes the Central
Government may by Notification in the Official Gazette, make such rules C
as it thinks fit. Sub-section (2) thereof, lays down that in particular and
without prejudice to the gemuality of the forgoing power such rules may
provide for all or any of the following matters, namely, (a) the opening of
new mines and the regulation of mining operations in any area, (b) the
regulation of the excavation or collection of minerals fro'm any mine. It is D
obvious that rules framed under Section 18(2) have a direct nexus with the
development of minerals. In this connection we may refer to Minerals
Conservation and Development Rules, 1988 framed under Section 18
sub-section (2) of the Act. It is true that these rules do not apply to coal
but as laid down by Section 18(1) read with Section 30 A even for mining
leases for coal such rules in appropriate cases may be made applicable. E
Rule 45 of these rules deals with monthly, quarterly and annual returns by
owners of every mine. When we refer to prescribed return from the owner
of the mine we find from Form I-9 that Form 1-1 will govern the monthly
return for other mines and various information sought for iron ore in part
I of the form. Item no. 4 in that part deals with rent and royalty paid. Thus F
royalty amount has to be mentioned in the form. It becomes, thus, clear
that fixation of royalty rates is in the realm of development of minerals as
envisaged by Section 18 of the Act. It is, therefore, not possible to agree
with the learned counsel for the writ petitioners fixation of rates of royalty
has nothing to do with the development of minerals.
G
That takes us to the contention that even if it were so the impugned
Notification is ultra vires Section 9(3) as it has nothing to do with the
development of minerals. As we have already seen earlier, to have a
uniform pattern of rates of royalty to be charged for extracting different
qualities and quantities of mineritl.s from different parts o'f:the country is a H
786 SUPRE~IE COURT REPORTS (1995] 1 S.C . R.
. ' '

A very vital aspect of the development of minerals. It is tr~e that one of the
main objects of the Notification was for recompensating the loss suffered
by States; but the facts remains that they suffered loss since the last hike
in royalty was done in 1981 by the Cent~al Government. It cannot be said
that even as purchasing power of rupee had fallen and inflation had risen
B including the prices of coal in national and international market, there was
no felt need for raising the rates of royalty to be charged for extraction of
minerals like coal from the lease holders when the mineral belonged to the
State. If the amount of royalty is so e.nhanced, it has to go to the coffers
of the State concerned which is the owner of the mineral. This is a logical +-+
corollary of enhanced rates of royalty. It cannot be said to be an irrel~vant
C consideration as tried to be suggested by the learned counsel fot the
petitioners. On the contrary, it was a relevant consideration· because the
States have to monitor. the working of the mines and the income generating
from extraction of minerals within their respective territories. If the Central
Government exercised its power under Section 9(3) of the Act though
D belatedly in 1991 for bringing out this result, it cannot be said· that it has
done what is ultra vires or beyond the scope of Section 9(3) of the Act. In
this connection we may keep in view the basic fact that mineral as found
in the bowels of the· earth or attached to earth surface by itself cannot
develop. For developing it, it has to be· brought on the surface and
separated from the crust of the mother earth and that can be done' by
E mining operation for winning these minerals. In this connection it is .
profitable to took at Section 3 of the Act. It defines minerals to include all
minerals except mineral oils including natural gas and petroleum. Mining
lease is defined to mean a lease granted for the purpose of undertaking
mining operations and includes a sub-lease granted for such purpose.
F Mining· operation means any operations undertaken for the purpose of
winning any mineral. It is obvious that development of mineral as envisaged
by Section 18 of the Act and even by Entry 50 of List II of the Seventh
Schedule of the Constitution, necessarily would mean extrat#on of mineral
· . out of the bowels of e·arth or from crust of. earth by mining operations.
Therefore, the term development., of minerals .has a direct linkage with
G mining operation. Without that minerals calln.ot develop by themselves. In
Words and Phrases, Permanent Edition, Volume No. 27 issued by West
.Publishing Company, St. Paul Minn., the term mineral is defined at page
;210 as follows :

·H "A mineral is a naturat body. destitUte ·of orgallisation of life."
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.] 787

Jt has also been shown that a mineral is anyt!llng that grows in mines and A
,. ~ contains. metals.. It is further mentioned therein that the mineral as used in
a deed will be restricted to that given it by the custom of the country in
which the deed is t~ operate. Mineral in ordinary and common meaning is
comprehensive term including every description of stone and rock deposit
whether containing metallic or non-metallic substance. The word mineral
in popular sense means those inorganic constituents of the earths crust
B
" which are commonly obtained by mining or other process for bringing them
to the' surface. for profit. Minerals hidden in the bowel of the earth by
' + themselves cannot yield profit to anyone and they become minerals when
the are brought oat on the surface of the earth by mining operations.
c
It must therefor, be held that regulation of mines and developm.ent
of minerals are interconnected concepts. Consequently, it is not .possible
to agree with the contention of the learned counsel for the writ petitioners
that imposition of ,royalty has nothing to do with the development of
minerals or that enhancing the rates of the royalty by the impugned D

""'
~ Notification is extraneous to the purpose of developing mines but is solely
for swelling the coffers of the States. Once that conclusion is reached, there
would survive no question of Notification being issued partly for legitimate
purposei of enhancing royalty rates after a decade from 1981 and partly for
an irrelevant purpose of swelling the State exchequer. In fact the entire
purpose of this exercise is for a legitimate relevant purpose for developing E
the· minerals_ and enabling the State which are the owners thereof to
,\
properly manage the mining lease so that minerals can develop on a
uniform pattern through out the country. In that view· of the matter the

- -+ submissio~-inade by Shri Ramaswamy relying on case S. Pratap Singh v.
The State of Punjab, [1964] 4 SCR 733 that alien purpose cannot be mixed F
with statutory purpose is of no avail to him. The argument of Shri Sanghi

.. relying upon the decision of this Court in ~ase State of Haryana & Another,
Amri/ Singh & Others v. Chanan Mal & Qthers, State of Haryana & Others,
[1977] 1 SCC_ 340 in para 23 at page 350 that declaration, under Section
has a limited coverage also cannot be of any assistance to him for the
simple reason that whatever may be covered by Section 2 declaration, it G
·~
has definitely covered the imposition of royalty by the Parliament as held
in the Constitution Bench decision of this Court in India Cement case
... (supra). As a result of this discussion it must be held that the impugned
Notification cannot be said to be ultra vires of Section 9(2) of t~e Act. The
second point is, therefore, answered in the negative. H
788 SUPREME COUiff REPORTS (1995) 1 S.C.R.

A Point No. 3

The question is whether the impugned N:otification is a piece· of
colourable exercise 'of power and, th.'erefore, riu.ri and void. It has to be kept
in view .that it is an exercise of delegated legislative function entrusted to
.~he Central Goverilll1,entby Parliament under Section 9(3). The concept of
B . colour'able legisiation has a. well defined connotation so far as parent
legislation is concerned. If the legislation trespasses on a field not reserved
for it under the relevant entry of the Seventh Schedule it can be said to be
a colourable legislation meaning thereby it purports to get covered by an
entry which does not give legislative competence to the legislature con-
C cerned to enact such a law. Adverting to the concept of colourable legis-
lation a Constitution Bench of this Court in case of Federation of Hotel &
Restaurant v. Union of India & Others, AIR (1990)' SC 1637, made the
following pertinent observations :

"The constitutionality of the law becomes essentially a question of
D power which in. a federal constitution, unlike a legally omnipotent
legislature liked the British Parliament, turns upon the construc-
tion of the critics in the legislative lists. If a legislature with limited
or qualified jurisdiction transgressed powers, such transgression
may be open direct and overt or disguised indirect and covert. The
E latter kind of trespass is figuratively referred to as 'colourable
legislation', connoting that although apparently the legislature pur-
ports to act within the limits of its own powers yet, in substance
and in reality, it encroaches upon a field prohibited to it, requiring

F
an examination, with some strictness, the substance of the legisla-
tion for the purpose of determining what is that the legislature was
really doing. Wherever legislative powers are distributed between
the Union and the States situations may arise where the two
-
· legislative fields might apparently overlap. It is the duty of ·the
Courts, however, difficult it may be, to ascertain to what degree
and to what extent, the authority to deal with matters falling within
.G these class~s of subjects exists in each legislature and to define in
the particular case before them, the limits of the respective
powers."

It is obvious that this aspect pf coloutable legislation would not
H strictly apply while judging the legality of the exercise of ·the delegated
STATEv. MAHALAXMIFABRICMILLS [MATMUDAR,J.] 789

legislative function. In fact it could not be contended by learned counsel A
for the writ petitioners that the Central Government had no power to act
under Section 9(3). Therefore, in the strict sense, there is no question of
the said Notification being a piece of colourable legislation touching upon
the power of some other authority functioning under any other provision
of delegated legislation. However, it has also to be observed that even in B
cases of delegated legislation, there are well defined limitations beyond
which if such an exercise projects itself, it would become ultra vires the
provision permitting such an exercise. We may profitably refer to a decision
of this Court in case Indian Express Newspapers (Bombay) Pvt. Ltd. and
Others etc. etc. v. Union of India & Others, AIR (1986) SC ~15. A Bench
of three learned Judge of this Court speaking through Venkataramiah, J ., C
as he then was, in connection with Notification issued under Section 25 of
the Customs Act which was a piece of subordinate legislation has made the
following observations :

"A piece of subordinate legislation does not carry the same degree D
of immunity which is enjoyed by a statute passed by a competent
legislature. Subordinate legislation may be questioned on any of
the grounds on which plenary legislation is questioned. In addition
it may also be questioned on the ground that it does not conform
to the statute under which it is made. It may further be questioned
on the ground that it is contrary to some other statute. That is E
because subordinate legislation must yield to plenary legislation. It
may also be questioned on the ground that it is unreasonable,
unreasonable not in the sense of not being reasonable but in the
sense that it is manifestly arbitrary."
F
Keeping in view this legal position, let us examine the challenge to the
impugned Notification on the ground that it is a colourable device. It was
submitted by the writ petitioners that though purporting to act under
Section 9(3) of the Act and by which an effort was made by the Central
Government to raise the rates of royalty, in substance they wanted only to
augment the coffers of the State Government and nothing more and in that G
manner it was a colourable exercise of power on the part of the Central
Government. While discussing Point No. 2, we have already repelled this
contention. For the reasons recorded therein even this contention has to
be rejected. Our attention was invited by Mr. Sorabajee, learned counsel
for the appellants, M/s, Birla Jute and Industries Limited, to the counter H
790 SUPREME COURT REPORTS [1995),lS.C.R.

. A filed by the Union o~ Iiidia and the State Government in the High Court
for justifying the impugned Notification. That counter is found at page 52
in SLP (C) No. 8190/94. A combined counter was filed on behalf of the ·'
respondent nos. 1, 3 and 4 in Misc. Petition No. 2907 of 1992 before the
High Court in the case of M/s. Saurashtra Cement & Chemicals India Ltd.
and Another and it was relied upon by the concerned authorities in all the
· B other cases. In tlte said counter at paragraph 'Q' it has been averred that
the State Government tried various methods for increasing their revenue
from time to time as stated in the petition. The State Government enacted
various Laws imposing Minerals Area Development and other cesses. + -
These have been struck down by the Hon'ble Supreme Court and the State
C Governments, tli~refore, were left with practical difficulties in making
necessary financial arrangement. The matter was examined in details on
the representation 'i made by the variOus State Governments and after
considering all aspect of the matter, a reasonable increase in the royalty
was found justified and, therefore, the Central Government has issued the
D said Notification. That after revision of rates of royalty on coal in February,
1981 the next revision was due in February, 1985. Study group was ap~
pointed in. 1984\ to .consider all a1;pects in depth regarding revision of rates
of royalty on coal. .The study group met representatives of the State
Government and ascertained their views. It also issued a questiomiaire to
the State Governments; calling for data relating to production of coal, rates
E of royalty, cesses, if any levied by them and other relevant information. The
study group found that most of the coal producing States were levying
cesses and taxes on coal the incidence of which was much higher than that
or royalty. Some of these taxes cesses were being levied as a percentage of
the pit-head value of coal by the State Governments. All the State Govern-
F ments represented to thdStudy group that the rates of royalty on coal
should bear a close corelation with the prices of coal. The coal producing
-
States, particularly West Bengal and Bihar pressed for fixation of royalty
on ad valQrem basis instead of the existing specific rates. The study group
expressed its view that any levy of royalty on ad valorem basis, without a
commitment from the State Governments to refrain from levying cesses,
G- would not be equitable as it would have a cascading effect on the prices
of coal paid by the consumers. Thereafter the counter referred to the
.striking down of cesses imposed by various State legislatures by this Court
and then_ at paragraph 'T' it is stated that Governments whose cess acts
were aeclared unconstitutional and collection of cesses was stopptd were
H
STATE v. MAHALAXMI FABRIC MILLS (MAJMUDAR, J.] 791

, .. . suffering substantial losses of revenues, they approached the Central A
Government to revise the rates of royalty on coal immediately to help to
get out of the financial crisis. It is further averred in the counter that in
order to examine the requests of State Governments to increase the rates
of royalty Department of Coal appointed yet another study group on 6th
February, 1991 to examine the report of the earlier study group. and
recommend appropriate increase in royalty in the wake of the Supreme
B
Court's Judgment in India Cement's case and subsequent judgments of the
High Courts. The study group discussed the issues with the representatives
of the coal producing State Governments and considered their views. Then
follows paragraph 'U' which states that after considering the report of the
second study group the rates of royalty on coal have been revised from an C
average of Rs. 5.30 per tonne to Rs. 70 per tonne w.e.f. 1.3.1991. These
rates have not been made applicable to the States of Assam and West
Bengal because these States are levying! collecting cesses on coal as their
Cess Acts have not been struck down by the Courts so far.
D
Placing reliance on these averments, ,~f the concerned authorities it
was vehemently contended bj Mr. Sorabajee and Mr. Ramaswamy that the
impugned Notification is issued not for the purpose of development of
mineral as contemplated by Section 9(3) but entirely f~~ a collectoral
purpose of compensating the State Governments for the loss of cess
revenues and for swelling their coffers. It is not possible to agree with this E
contention. The aforesaid averments clearly indicate that from 1981 rates
of royalty were not increased further and there was a demand from all
States to make suitable increase in rates of royalty to be commensurate
with the rising prices of coal. That is why t4e first, study group was
appointed in 1984 and that was followed by second study group of 1991. F
Naturally the second study group came to the conclusion that the cesses
imposed were struck down by this Court and, therefore, there was a need
for properly enhancing royalty rates. As Section 9(3) is the only Section
remaining in field which could permit such an exercise and it was only the
Central Government which could do so, accordingly the impugned
Notification has been issued. It tried to enhance the rates of royalty which G
earlier the States unauthorisedly tried to bring about. If the or~al writ
petitioner's contentions are accepted, it could even be contended that
neither the Central Government under Section 9(3) nor the State Govern-
ments could increase the rates of royalty and 1981 rates which have become
illusory with. the passage of time continue to hold the field ad infinitum. It H

r
792 SUPREME COURT REPORTS [1995] 1 S.C.R.

A has to be kept in view that a fresh exercise of delegated legislative fu.nction
.J.. <
in the facts and circumstances did justify such enhancement at least after
10 years of the earlier revision in 1981. The motive underlying the said
enhancement to compensate the States for loss of revenue which they have
suffered cannot be said to be totally irrelevant or having any vitiating effect
on the exercise of power under Section 9(3) which is otherwise required
B to be resorted to in the facts and circumstances of the case. The motive of
legislature or for that matter of the delegate in exercising delegated legis-
lative function for enacting a provision .within its competence cannot be +~
considered to be in any way having any relevant nexus to the efficacy of
the product of such an exercise. As we have already discussed earlier, the
c mineral belongs to the States, and so, if the Central Government has taken
into consideration the fact that the States revenues are required to be
re-compensated on account of the loss suffered by them in their abortive
efforts to escalate the royalty, it cannot be considered to be an irrelevant •'
consideration. It clearly appeared that after 10 years from 1981 during
which the royalty rates remained static there was a crying need of the day ;...
D for the Central Government to exercise its power under Section 9(3) and --r
to revise upward the royalty rates in confirmity with the rising prices of the
minerals alround as mentioned in the counter and for which there was a
strong representation by the various States Governments to the Central
Government. With respect we are not in a position to endorse the view of
E the High Court that the impugned Notification was a colourable devise and
was issued for extraneous. Equally, we are not in a position to agree with
the contention of Shri Ramaswamy that the said Notification was issued
for an alien purpose. The third point for our consideration is, therefore,
answered in the negative. +-
F
Point No. 4

So far as this point is concerned, it is true that even the exercise of
delegated power can be challenged on the ground that that it is highly
arbitrary, irrational and confiscatory in nature and would not stand the test
·-
G of Articles 14 and 19(1) (g). Learned counsel for the writ petitioners -t--·
submitted that as compared to the rates of royalty fixed in 1981, the present
rates have gone up by 200 to 400 per cent and, therefore, they have become
confiscatory in nature. It is not possible to agree with the contention as the
writ petitioners have laid no evidence, to show as to'how this escalation of
H rates for different types of coal extracted by the lessee of mines had
.STATEv. MAHALAXMIFABRIC MILLS [MAJMUDAR, J.) 793

adversely affected their business or that they are thrown out of business A
because of such heavy burden of escalated royalty. It is not the case of any
of writ petitioners that their mining operations had to be closed down
because of such high rate~ of royalty as enhanced by the impugned
Notification. Also there is nothing on record co show whether the burden
of this enhanced rates of royalty is borne only by the lesses of the mines B
who have extracted the minerals and has not been passed on to the
customers by adding it to the price of coal. As all these are questions of
facts there should be clear pleading and proof. There is no such ma• ..:rial
•, ... on the record from which on the basis of such arguments any decision can
be rendered. Only on this short ground, we must hold that the original writ
petitioners have failed to show how the enhanced rates of royalty as per C
the impugned Notification have become unreasonable or confiscatory in
nature. Point No. 4 is, therefore, answered in the negative.

As all the points raised by the writ petitioners are answered against
them, the inevitable result is that the orders passed by the High Court in
their fayour by partly allowing the writ petitions will have to be quashed D
and set: aside and their writ petitions will have to stand dismissed. In the
result Civil Appeal Nos. 275/94 and 276/94 are allowed. The judgment and
order of High Court in M.P. No. 10/93 dated 17.12.93 are quashed and
set aside and the writ petition is dismissed. Similarly, appeal No 1994/95
arising from SLP (C) No. 3395 of 1994 moved by the State of Madhya E
Praoesh is also allowed. The judgment and order of the High Court in
Misc. Petition No. 7907/92 dated 17.12.93 are quashed and set aside and
the said petition is also dismissed. Civil Appeal No.1995/95 arising out of
SLP(C) No. 8190/94 m.wed hy M/s. Birla Jute and Industries Ltd is
dismissed. In the facts and circumstances of the case, there will be no order
as to costs in all these matters. F
R.A. Appeals disposed of.