2016 Supreme(SC) 64

SUPREME COURT OF INDIA
ANIL R. DAVE, ADARSH KUMAR GOEL, JJ.
STATE OF RAJASTHAN & ORS. – APPELLANTS
VERSUS
GOTAN LIME STONE KHANJI UDYOG PVT. LTD. & ANR. – RESPONDENTS
CIVIL APPEAL No. 434 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.23311 OF 2015)
Decided on : 20-01-2016

IMPORTANT POINT
Minerals vest in State and State has to exercise its power to deal with them as per doctrine of public trust.

Headnote:(A) Mines and Minerals – Transfer of mining lease – Rules 15 and 72 of Rajasthan Minor Mineral Concession Rules, 1986 – Mining rights are vested in State and lessee is strictly bound by terms of lease – Mining rights are regulated consistent with doctrine of public trust – Partnership firm holding lease hold rights has successfully transferred said rights to a third party for consideration in form of share price which is nothing but price for sale of mining lease which is not allowed and for which no permission has been granted – If these facts were disclosed to competent authority, permission for transfer of mining rights for financial consideration could not be allowed – Mining rights belong to State and not to lessee and lessee has no right to profiteer by trading such rights – Lessee can either operate mine or surrender or transfer only with permission of authority as legally required – Rules prohibit transfer of mining lease for consideration without previous consent of competent authority in writing – It was a case of suppression veri and suggestio falsi – Judgment of High Court set aside – State of Rajasthan directed to frame and notify its policy in the matter. (Paras 19, 22, 28, 32, 35 and 37)

       (1985) 4 SCC 114 ; (1986) 1 SCC 264 ; (1995) 1 SCC 478 ; (1988) 4 SCC 59; (1996) 4 SCC 622; [(2013) 6 SCC 476 ; (1981) 2 SCC 205 ; (2012) 11 SCC 1 ; (1976) 4 SCC 108 ; (2013) 7 SCC 571 ; (1985) 3 SCC 230 ; (2004) 10 SCC 1 ; 1936 AC 1 ; 1982 AC 300 ; (2014) 6 SCC 590 – Relied.

       (B) Mines and Minerals – Transfer of mining lease – Legal tenability – Court has not to merely see form of transaction which is of sale of shares but also substance which is private sale of mining rights avoiding legal bar against transfer of sale rights circumventing mandatory consent of competent authority – Consent of competent authority is not a formality and transfer without consent is void – Minerals vest in State and mining lease can be operated strictly within statutory framework – State has to regulate transfer of such rights in best interest of people – No lessee can trade mining rights by adopting a device of forming a private limited company and transfer of entire shareholding only with a view to sell mining rights for private profit. (Paras 30 and 32)

       (C) Mines and Minerals – Transfer of mining lease – Parameters – State has to exercise its power of granting or refusing permission for transfer of lease in a fair and reasonable manner but following doctrine of public trust – State cannot overlook illegal transfers – State must have a declared policy for exercise of its power of permitting or refusing transfer of mining leases and such policy should be operated in a transparent manner – However, even in absence of a policy and irrespective of exercise of power in past, transfer of lease for private benefit without corresponding benefit to public or State exchequer is not permitted – Minerals vest in State and State has to exercise its power to deal with them as per doctrine of public trust – Acquisition of mining lease contrary to rules is void – Requirement of previous consent cannot be ignored nor taken to be formality subject only to pay dead rent or agreeing to follow same terms – Lessee privately and unauthorisedly cannot sell its rights for consideration and profiteer from rights which belong to State – There is no warrant for any contrary assumption. (Paras 33 and 34)

       (D) Doctrine – Doctrine of Lifting of Corporate Veil – Principle of lifting corporate veil as an exception to distinct corporate personality of a company or its members is well recognized not only to unravel tax evasion but also where protection of public interest is of paramount importance and corporate entity is an attempt to evade legal obligations and lifting of veil is necessary to prevent a device to avoid welfare legislation – Instantly, doctrine of lifting veil has to be applied to give effect to law which is sought to be circumvented. (Paras 23 and 26)

       (1988) 4 SCC 59; (1996) 4 SCC 622 – Relied.

       Facts of Case:

       Question for consideration is whether looking at substance of the transaction in question, an illegal transfer of mining lease was involved? Whether transformation of partnership into company and transfer of lease rights to such company, though apparently valid and permitted, has to be seen with the next transaction of transfer of the entire shareholding to a third company for a price thereby avoiding declaration of real transaction of sale of mining lease which was not permissible. Further question is whether on this basis the State is justified in cancelling the lease which the High Court has quashed.

       Findings of Court:

       Learned single Judge and the Division Bench have gone by only one aspect of law, i.e. the general principle that sale of shares by itself is not sale of assets but this principle is subject to the doctrine of piercing of corporate veil wherever necessary to give effect to the policy of law. In the present case, this principle clearly applies as transfer of shares to cover up the real transaction which is sale of mining lease for consideration without the previous consent of competent authority, as statutorily required. The statutory requirement is sought to be overcome with the plea that it was a transaction merely of transfer of shareholding when on the face of it the transaction is clearly that of sale of the mining lease. In view of the above, the view taken by the High Court cannot be sustained.

       Result : Appeal allowed.