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Stays Kerala Government Refund Order Over Unconstitutional Mineral Royalty Act
The
on Friday granted significant
to the Kerala government by staying a
direction that had ordered the state to refund all royalties collected under the
. The Apex Court also directed that
"the State shall not levy or recover any royalty under the Act until further orders."
The stay comes as a reprieve for the state, which faced a potential financial liability of approximately ₹1,200 crore if the refund had been enforced. A bench comprising Chief Justice Surya Kant, Justice Joymalya Bagchi, and Justice V Mohana issued notice on the state's challenging the High Court's declaration that the 2021 Act is unconstitutional.
Background: Historical Mineral Rights Divide
The dispute traces back to a historical anomaly in Kerala's mineral governance. In the erstwhile princely states of Travancore and Cochin, sub-soil mineral rights had already been vested with the state under pre-existing laws. However, the Malabar region—which was part of the Madras Presidency under British rule—had no such vesting legislation. Landowners in Malabar retained ownership of minerals beneath their private lands.
To address this disparity, the Kerala Legislature enacted the , which vested all rights in minerals beneath privately owned land in Malabar in the state, with from . The Act also provided for the levy of royalty on minerals extracted and sold by landowners.
The legislation was immediately challenged. A single judge of the upheld its validity, but a Division Bench reversed that decision, holding that the Act violated because it did not provide any compensation to landowners for the vesting of their mineral rights. The Division Bench also found that the Act failed to comply with the safeguards under , particularly the second proviso requiring for lands within . Consequently, the High Court directed the state to refund all royalties collected under the Act.
Hearing: Arguments and Observations
, appearing for the Kerala government, argued that the High Court's refund direction imposed an enormous financial burden on a "small state" like Kerala. When the Chief Justice asked about the quantum, Giri replied, "about Rs.1200 crores."
Giri further submitted that the state does not itself extract the minerals. Instead, the Act merely contemplates a royalty when the landowner extracts and sells minor minerals.
"What happens is this – though there is a statutory declaration that the mineral rights vest in the state, we don't take it and sell it. The owner of the property, they sell it, and when they sell it, all that this Act contemplates is the levy of royalty on the quantity of mineral which they extract and they sell,"
he explained.
Justice Bagchi, however, pressed the state on the compensation question. He observed that while the state had a "
" in enacting the law, the critical issue was:
"when the state has a
to make a law, and thereby vests certain properties, will it not be a part of the legislation to qualify the tests of
to have some
?"
This observation underscored the bench's concern that the Act, as framed, might not satisfy
.
, appearing for the landowners (respondents), countered the state's submissions on two main points. First, he highlighted that while the Travancore law provided for compensation, the Malabar law did not. Second, he invoked the
of the Constitution, arguing that
must be provided for lands falling within
. Datar asserted,
"today the law is fatal because the
, which says that if the lands are within the
, you have to provide market compensation. And
applies to estate or any rights under that estate also."
He argued that the entire Act needed to be re-enacted with proper compensation provisions.
The Bench's Suggestions: Rewrite and Ninth Schedule
During the hearing, the Chief Justice orally suggested that the state could amend the legislation to include a provision for compensating landowners. This remark indicated that the bench sees a constitutional path forward if the state addresses the compensation deficit.
Justice Bagchi went a step further, observing that bringing the amended legislation under the protection of the could provide a permanent solution. The Ninth Schedule shields laws from on the ground of violation of fundamental rights, though such protection has been subject to the "" doctrine. The suggestion implies that the Court may be willing to uphold a properly re-enacted law if the state takes the necessary curative steps.
Order and Implications
The bench ultimately issued notice on the state's petition and passed the interim stay. The effect is that the Kerala government need not refund the ₹1,200 crore collected as royalty, and it cannot collect any further royalty under the 2021 Act until the decides the matter.
For legal practitioners, the case raises several important constitutional questions. The interplay between Article 300A () and the state's power to vest mineral rights without compensation is a recurring issue in resource-rich states. The Court's emphasis on compensatory packages before vesting property rights aligns with settled jurisprudence that the , though no longer a , is a constitutional right under Article 300A and cannot be taken away without and compensation.
Moreover, the suggestion to use the Ninth Schedule highlights a strategic move available to legislatures to insulate welfare or regulatory laws from frequent constitutional challenges. However, the Ninth Schedule route is not without risk—the has held that laws placed in the Ninth Schedule after , are open to challenge on the ground of violating the of the Constitution.
Impact on State Legislation and Mineral Policy
The outcome of this case will have far-reaching consequences for state legislation governing natural resources. Several states have similar laws vesting mineral rights in the government, often without explicit compensation to landowners. If the ultimately upholds the High Court's declaration of unconstitutionality, it may force a wave of legislative amendments across the country to include compensation mechanisms.
For Kerala, the immediate financial relief is substantial. Beyond the ₹1,200 crore refund, the state can avoid future royalty collection until the law is fixed. However, the state must now act quickly to draft a revised law that provides for fair compensation, perhaps modelled on the Travancore law, and then consider placing it in the Ninth Schedule for added protection.
The case also underscores the importance of legislative clarity when dealing with property rights. The retrospective operation of the 2021 Act from 2019 added another layer of complexity, as landowners had already been operating under a different legal regime. The 's eventual judgment will likely clarify the limits of and the necessity of compensation.
Conclusion
The 's interim order gives the Kerala government breathing room, but the constitutional storm over the Minerals Act is far from over. The bench has made it clear that a law that vests property rights without compensation cannot stand. The ball is now in the state's court to rewrite the law and ensure it meets constitutional standards—possibly with the added safeguard of the Ninth Schedule. Legal professionals across India will be watching this case closely, as its resolution will set a precedent for mineral rights legislation nationwide.
