Bhushan Power & Steel Ltd. & Ors vs State Of Orissa & Anr

BHUSHAN POWER & STEEL LTD. & ORS. ... APPELLANTS

Vs.

STATE OF ORISSA & ANR. ... RESPONDENTS

J U D G M E N T

ALTAMAS KABIR, J.

1. Leave granted.

2. With the intention of setting up an integrated steel

plant in the State of Orissa, Bhushan Limited, entered into

discussions with the State Government in 2001 in that

regard. Pursuant to such discussions, Bhushan Limited

applied to the Industrial Development Corporation of India

(IDCO) for acquisition of land measuring 1250 acres, for

setting up the proposed plant in the identified villages of

Thelkoloi, Dhubenchhabrar and Khariapalli (Lapanga) in the

District of Sambalpur. On 13th November, 2001, Bhushan

Limited applied to the Industrial Promotion and Investment

Corporation of Orissa Ltd. (IPICOL) for appraisal and

recommendation for acquisition of land for the aforesaid

purpose to IDCO. Bhushan Limited also addressed two letters

to the Collector, Sundergarh and Collector, Keonjhar on 28th

November, 2001, applying for grant of lease for mining of

iron ore for use in the proposed plant. The applications

were received in the Collector's office on 3rd December,

2001, 4th December, 2001 and 1st March, 2002. On the basis of

such applications filed by Bhushan Limited, a meeting was

held on 27th March, 2002, between the Chief Secretary,

Government of Orissa and Bhushan Limited, in which the

Government agreed to accord due priority to Bhushan Limited

for grant of suitable iron ore areas and also agreed to

recommend the proposal of Bhushan Limited to the Government

of India for grant of a Coal Block.

3. Thereafter, meetings were held between Bhushan Limited

and the representatives of the State Government and one such

meeting was held on 24th April, 2002, under the Chairmanship

of the Chief Minister, relating to the setting up of the

steel plant at Lapanga. The said meeting was confirmed by

IDCO and the Water Resources Department and it was decided

to prepare a Memorandum of Understanding (MOU) to be signed

by the parties for setting up of a 1.2 million tonnes steel

plant under Phase-I and a 2.8 million tonnes steel plant in

Phase-II in Lapanga, in the District of Sambalpur. The MOU

contained the commitment of the State Government to

recommend to the Central Government grant of iron ore mines

to the Appellant for its use in the plant to be set up at

Lapanga. As far as the grant of the iron ore mines is

concerned, the State Government agreed to make the following

recommendations to the Central Government:

a) For grant of 96 million tonnes iron ore

reserves in Joda Barbil Sector of Keonjhar

(Thakurani area) for 50 years requirement of

the plant.

b) For additional 128 million tonnes of iron ore

reserves in Keora, District Sundergarh, to meet

a requirement of 1.6 million tonnes for 50

years.

The total requirement of 200 million tonnes was split up

into two parts, i.e., 96 million tonnes and 128 million

tonnes respectively, and the same were to be met from the

Thakurani mines situated in the Joda Barbil sector and from

the Keora area of Sundergarh District.

4. Pursuant to the aforesaid understanding, on 16th May,

2002, the Government of Orissa addressed two letters to the

Government of India, in its Ministry of Steel and Ministry

of Coal, for allotment of Jamkhani and Bijahan Coal Blocks

to Bhushan Limited. In aid of the decision to set up the

steel plant, the Department of Energy issued a No Objection

Certificate (NOC) for setting up of a power plant at

Thelkoloi in the name of Bhushan Limited and, on 5th July,

2002, the State Government conveyed its approval for

acquisition of 632.28 acres of private land and 634.94 acres

of Government land in identified villages under Rengali

Tehsil of Sambalpur District, for establishment of the steel

plant. Several meetings took place between the Principal

Secretary and the representatives of Bhushan Limited, where

even the Joint Secretary of Mines was present and assurances

were given to Bhushan Limited to send the proposal for grant

of mining lease in favour of Bhushan Limited to the State

Government by the first week of September, 2002. On 22nd

October, 2002, even the State Pollution Control Board gave

its approval in principle for setting up the plant in the

selected sites.

5. On 8th November, 2002, the Director, Mines, furnished his

report on the application made by the Appellant on 4th

December, 2001, for grant of mining lease over the Thakurani

Block area. In the said report it was recorded that

Thakurani Block A and Block B mines had been leased in

favour of the Sharda's in 1934, by the Ex-Ruler of Keonjhar

and that the Thakurani Block A mines had been extensively

mined by the original lessee from 1934 onwards. The report

also disclosed that in 1998, the matter was settled in this

Court between the State, the Sharda's and the Centre. It

was agreed that Thakurani Block A would be relinquished in

favour of the State and the mining lease of Block B would be

renewed in favour of the Sharda's. Accordingly, in terms of

the settlement, the Thakurani Block A became available with

the State. It is on the aforesaid basis that the Appellant

had been advised to apply to the State Government for this

area, and the same was done in December, 2001. The report

also indicated that a mining licence could be granted to

Bhushan Limited in relaxation of Rule 59(2) of the Mineral

Concession Rules, 1960, hereinafter referred to as the "MC

Rules", in view of the fact that the Thakurani Block A had

been mined by the original lessee from 1934 onwards. The

State Government was advised to recommend to the Centre for

grant of relaxation under Rule 59(2) of the MC Rules.

6. On 19th February, 2003, the Orissa Electricity Regulatory

Commission (OERC) passed an order granting permission for

installation of a Captive Power Plant by Bhushan Limited.

7. It is at this stage that trouble began to brew. A

decision had been taken to merge Bhushan Ltd. with Bhushan

Steel and Strips Limited (BSSL) which had an identity which

was separate from that of Bhushan Limited, though treated to

be a family concern under the Bhushan family umbrella. On

21st February, 2003, the Government of Orissa was informed by

Shri Brij Bhushan Singhal, Chairman of the Bhushan Group,

that Bhushan Limited, the Appellant herein, would not be

merging with BSSL, but that the papers were being processed

in the name of Bhushan Limited, as a group. Accordingly, the

State Government was requested not to process the papers for

2-3 months. On 17th March, 2003, BSSL wrote to the Chief

Minister, informing him of the developments which had taken

place and that two companies had decided not to merge, with

retrospective effect from 1st April, 2002, as had been

decided earlier.

8. Thereafter, on 5th May, 2003, Shri Neeraj Singhal wrote

to the Chief Minister on behalf of BSSL informing him that

BSSL was unable to process the setting up of the steel plant

at Lapanga and in order to minimize the friction between the

two groups within the family, BSSL had decided to set up a

separate steel plant at a different location in Mehramandali

in the District of Dhankanal in respect whereof 1500 acres

of land had been identified. On 17th June, 2003, the Water

Resources Department, Government of Orissa, wrote to Bhushan

Power & Steel Ltd. giving its approval of the layout for

intake well for drawal of 100 cusec water for the integrated

steel plant of the Company. This was followed by grant of a

certificate by IDCO on 19th July, 2003, confirming sanction

of land for lease measuring 488.08 acres in favour of

Bhushan Limited comprising Thelkoloi, Dhubenchhapar and

Khadiapalli, which had been identified in the MOU for

establishment of the steel plant by Bhushan Limited.

9. The said sanctions were followed up by a meeting chaired

by the Chief Minister of Orissa on 25h July, 2003, wherein

the progress of the project was discussed and it was

resolved that the application of Bhushan Limited for iron

ore deposits would be recommended to the Government of India

and that no fresh MOU was required to be filed. It was

decided that the MOU executed earlier between the Bhushan

Group and the State Government on 15th July, 2002, would

remain undisturbed, since, the same had already been acted

upon by both sides. It was also decided that the

application of Bhushan Limited for iron ore deposits would

be recommended to the Government of India in terms of the

MOU, after the same was placed before the Screening

Committee which was chaired by the Chief Secretary.

10. Further to the permission being granted to Bhushan

Limited on 21st February, 2003, for installation of a Captive

Power Plant, OERC granted a "No Objection Certificate" to

Bhushan Limited for setting up of a Captive Power Plant for

increased capacity.

11. Subsequently, various other steps were taken for

establishment of the power plant at Lapanga by Bhushan Power

& Steel Ltd. On 10th February, 2004, the State Government

wrote to Shri Sanjay Singhal, representing Bhushan Limited,

that in view of the reorganization and restructuring of the

Bhushan Group, the earlier MOU ceased to exist and had lost

its force. Accordingly, a fresh MOU was required to be

entered into between the Appellants and the State Government

for speedy implementation of the project which was on the

anvil. It is the case of the Appellants that this letter was

never acted upon by either party, since, thereafter, the

State allotted and granted possession of large tracts of

land to the Appellants and other agreements, such as drawal

of water were entered into, permission was given for

connectivity with the Grid and other various other

administrative sanctions, as also approval for acquisition

of land, were made in favour of Bhushan Power & Steel Ltd.,

without any insistence for the execution of a fresh MOU.

Simultaneously, Shri Neeraj Singhal of BSSL was also

informed by the State that since they wanted to set up a

separate steel plant at Mehramandali, a fresh MOU to this

effect could be entered into between the State and BSSL.

12. Responding to the letter of 10th February, 2004, Bhushan

Limited wrote back on 21st February, 2004, stating that no

fresh MOU was required to be signed, since the earlier MOU

was quite valid. On 11th March, 2004, the Government of

Orissa, in its Department of Industries, informed IDCO that

the Government had been pleased to advise for immediate

transfer of acquired land, both Government and private, to

Bhushan Limited, after observing all the necessary

formalities. However, on 17th March, 2004, Shri Neeraj

Singhal, Managing Director of BSSL, wrote to the Principal

Secretary, Department of Steel and Mines, contending that

Bhushan Limited, as also BSSL, were entitled to the benefits

of the MOU, which had been signed on 15th May, 2002.

13. Within a week thereafter, on 24th March, 2004, IDCO

transferred the land for the project at Lapanga to Bhushan

Limited and possession thereof was also made over on several

dates. On 12th May, 2004, the Ministry of Environment and

Forest, Government of India, gave clearance to the project

at Rengali in the name of Bhushan Limited. The Chief

Inspector of Factories and Boiler, gave approval to the

Steam and Feed Water pipe line drawing for Bhushan Limited

on 2nd July, 2004. On 3rd September, 2004, the Government of

Orissa, in its Ministry of Environment and Forest, granted

approval to Bhushan Limited for diversion of 59.16 hectares

of forest land for establishment of the integrated steel

plant and an agreement was also drawn up between the

Government and Bhushan Limited on 17th September, 2004, for

drawal of water from the Hirakud Reservoir for use in the

proposed integrated steel plant at Lapanga. On 2nd February,

2005, the State Government wrote to Bhushan Limited, seeking

the status report of the steel plant project and on 16th

March, 2005, permission was granted for provisional

energisation of 220 KV line issued by the Chief Electrical

Inspector in favour of Bhushan Limited. Several other

approvals were granted upto 9th August, 2005, and finally in

March, 2005, Bhushan Limited (BPSL) commenced production at

its steel plant. On 6th September, 2005, administrative

approval was given for acquisition of additional private

land for Lapanga plant, granted by the Steel and Mines

Department to Bhushan Limited. Similar approval was given in

respect of other lands on 28th September, 2005 and 6th

February, 2006.

14. Simultaneously, with administrative approval being given

for acquisition of private land for the Lapanga plant on 3rd

November, 2005, an agreement was entered into between BSSL

and the Government of Orissa for putting up the steel plant

at Mehramandli. There was no mention of the MOU dated

15th May, 2002, in the said agreement. Within a matter of 10

days, the Directorate of Factories and Boilers wrote to

Bhushan Limited granting permission under the Factories Act,

1948, to construct the steel plant at Lapanga.

15. Surprisingly, on 31st December, 2005, the Government of

Orissa issued a letter to Bhushan Limited indicating that it

had decided not to treat the MOU signed earlier with M/s

Bhushan Group of Companies as place specific after the

company had been divided into Bhushan Limited (BPSL) and M/s

Bhushan Steel and Strips Ltd. (BSSL). The Bhushan Group was

informed that the State Government had decided to deal with

both the Companies separately and to sign two separate

agreements for the purpose of acquiring land, allotting

mines and providing other facilities for establishment and

growth of steel plants in Orissa.

16. On 9th January, 2006, a letter was addressed by the

Directorate of Factories and Boilers to Bhushan Steel Ltd.

approving the draft of the steam pipe line and on 13th

January, 2006, on the recommendation of the Government of

Orissa, the Central Government allotted Bijahan Coal Block

in the District of Sundergarh to Bhushan Limited as per the

MOU.

17. Even more surprisingly, on 18th January, 2006, the

Government of Orissa issued a Show-Cause Notice to Bhushan

Limited to appear before the Joint Secretary on 17th

February, 2006, for a personal hearing. Several deficiencies

in the application for mining lease of iron ore dated 4th

December, 2001, in respect of the Thakurani Block A, were

also pointed out. Thereafter, the State Government informed

the Appellants that their application dated 4th December,

2001, for mining lease over the Thakurani area could not be

allowed on various grounds. However, the most significant

ground was that the area in question came within the

relinquished area of the mining lease of M/s Sharda which

was not thereafter thrown open for re-allotment under Rule

59 of the aforesaid Rules. It was alleged that the

application made by Bhushan Limited was, therefore,

premature. Having rejected the Appellants' prayer for grant

of mining lease, on 9th February, 2006, the Government of

Orissa made a recommendation to the Central Government to

grant mining lease in favour of M/s Neepaz Metallicks (P)

Ltd. in relaxation of Rule 59(1) of the aforesaid Rules, for

a period of 30 years.

18. On 28th February, 2006, Bhushan Limited altered its name

to Bhushan Power & Steel Ltd. (BPSL).

19. On 8th May, 2006, Bhushan Limited filed Writ Petition

No.6646 of 2006 before the Orissa High Court. On the next

day, the State Government issued a reminder to Bhushan

Limited in regard to its letter dated 31st December, 2005, by

which the State Government had asked for a separate MOU from

Bhushan Limited, inspite of the MOU already existing between

the parties, which had also been acted upon till as late as

26th April, 2006. On 15th May, 2006, the High Court passed an

interim order granting status-quo with regard to the

applications for mining lease. On 5th September, 2006, an

intervention application was filed by BSSL, which was

allowed on 6th December, 2006.

20. During the course of hearing of the Writ Petition, the

High Court passed an interim order and directed that the

problems relating to the Show-Cause Notice dated 18th

January, 2006, should be resolved, keeping in view the

commitments of the State. On 26th June, 2007, the High Court

directed circulation of the order dated 18th June, 2007, and

liberty was given to Bhushan Limited to challenge the same

by filing an affidavit in the writ proceedings.

21. Such affidavit was duly filed on 10th July, 2007, and the

order impugned in the present appeal came to be passed by

the High Court on 14th December, 2007, dismissing the

aforesaid Writ Petition No.6646 of 2006. The substance of

the order of the High Court while dismissing the Writ

Petition is :-

(a) The Court cannot set aside the communication of the

State Government asking the Appellants to sign a fresh

MOU with the Government as early as possible.

(b) The Appellants' application for grant of mining lease

dated 4th December, 2001, should be considered afresh

by the appropriate authorities of the State Government

in accordance with law, along with other similarly

placed applicants.

(c) The Appellants would be at liberty to challenge the

subsequent report of the Director of Mines dated 31st

May, 2007, in the hearing which would be afforded to

the Appellants by the appropriate authority of the

State.

(d) The Appellants would be at liberty to challenge the

order dated 18th June, 2007, on merits, but it was also

submitted that the application for mining lease of the

Appellants would be considered after it executed a

fresh MOU with the State Government.

22. As indicated hereinbefore, on 21st April, 2008, this

Court passed an interim order in the Special Leave Petition

filed by Bhushan Limited directing the parties to maintain

status-quo with regard to the lands indicated in the

application filed by the Appellants for grant of mining

lease. However, one of the most significant developments

that subsequently took place was that on 15th November, 2011,

Shri B.B. Singhal and Shri Neeraj Singhal, Vice-Chairman and

Managing Director of Bhushan Steel and Strips Ltd. filed

affidavits withdrawing all their claims and rights in the

MOU dated 15th May, 2002, executed between the State

Government and Bhushan Limited and declaring that the said

MOU was and had always been in favour of Bhushan Power &

Steel Ltd. The above-named persons also prayed for deletion

of their names from the array of parties.

23. Appearing for the Appellants, Mr. Mukul Rohatgi, learned

Senior Advocate, pointed out that only two issues arise for

the consideration of this Court in the present case, namely

-

a) Whether the Memorandum of Understanding dated

15th May, 2002, continues to subsist in favour of the

Appellants?

b) Whether the State Government is obliged to make

recommendations for the grant of iron ore mines in

terms of the stipulations contained in the aforesaid

MOU dated 15th May, 2002, and whether in respect of

the areas which had not been notified under Rule

59(1), the State Government can make a

recommendation for relaxation of Rule 59(1) under

Rule 59(2)?

24. Mr. Rohatgi submitted that having entered into a

Memorandum of Understanding with the Appellant Company and

having acted thereupon and having also caused the Appellants

to change their position to their detriment, it was not

open to the State Government to call upon the Appellants to

execute a fresh MOU, during the subsistence of the MOU dated

15th May, 2002.

25. Mr. Rohatgi also submitted that notwithstanding the

State Government's requirement that the Appellants should

enter into a fresh MOU, the State Government continued to

act under the MOU dated 15th May, 2002. Despite the

communications dated 10th February, 2004, and 31st December,

2005, above recorded, the State Government went on further

to hold that all the steps required to be taken for

installation of the steel plant at Lapanga, had been taken,

except that it did not comply with the obligations of making

recommendations to the Central Government for grant of iron

ore mines. Mr. Rohatgi urged that during the pendency of

the proceedings, the dispute between the members of the

Bhushan Group had been settled and the parties had mutually

agreed to withdraw all the allegations and claims relating

to the MOU dated 15th May, 2002. Incidentally, by filing

I.A.No.13, BSSL confirmed that Bhushan Power & Steel Ltd.

was the sole beneficiary under the MOU dated 15th May, 2002,

and withdrew all its claims under the MOU dated 15th May,

2002.

26. Mr. L. Nageshwar Rao, learned Senior Advocate, appearing

for the State of Orissa, has also very fairly stated that in

view of the settlement of disputes between the members of

the Bhushan Group, the issue relating to the MOU did not

survive and, since, the State Government had already

performed its obligation under the MOU, the only thing

remaining to be done by the State is to make recommendations

to the Central Government for grant of iron ore mines to the

Bhushan Power & Steel Ltd.

27. Mr. Rohatgi submitted that in the changed circumstances,

the question of execution of a fresh MOU loses its relevance

and the letter dated 31st December, 2005, calling upon the

Appellants to execute a fresh MOU, is not required to be

given effect to. Consequently, it may be held that the MOU

dated 15th May, 2002, continues to be valid and subsisting

between the State of Orissa and Bhushan Power & Steel Ltd.

28. On the question of Rule 59 of the MC Rules, which formed

the basis of the State Government's decision to reject the

Appellants' application for being recommended to the Central

Government for grant of a mining lease, Mr. Rohatgi

submitted that such recommendations had been made by the

State Government in favour of other applicants as well, such

as M/s. S.M.C. Power Generation Ltd., M/s. Neepaz Metalics,

M/s. Sree Metaliks and M/s. Deepak Steel & Power. Therefore,

there was no reason to deny the same benefits to the

Appellants as well.

29. Appearing for the Intervener, M/s. Jindal Steels Ltd.,

Mr. K.V. Vishwanathan, learned Senior Advocate, submitted

that so long as any allotment made in favour of the

Appellants did not impinge on the allotment made in favour

of M/s. Jindal Steels Ltd., it could have no grievance

against a separate allotment being made in favour of the

Appellants.

30. The mutual settlement of the disputes between the

members of the Bhushan Group has altered the situation

considerably, since BSSL has withdrawn its claim under the

MOU dated 15th May, 2002, and has declared that the said MOU

was and had always been executed by the State Government in

favour of Bhushan Power & Steel Ltd., which had set up its

steel plant at Lapanga. As indicated hereinbefore,

although, the MOU was entered into by the State Government

with the Bhushan Group for setting up a steel plant at

Lapanga, at a later stage, BSSL also laid claim under the

MOU for setting up a separate steel plant at Mehramandali

and a suggestion was also made for execution of a fresh MOU

between the State Government and BSSL to this effect.

31. Pursuant to the MOU with Bhushan Limited, the State

Government had not only allotted land for the setting up of

the steel plant at Lapanga, it had even extended all help

for the commissioning of the plant, which, in fact, had

already started functioning. However, it is the claim made

by BSSL under the MOU executed on 15th May, 2002, that had

created obstructions in the setting up of the steel plant at

Lapanga. Despite having allotted land and granted sanction

to Bhushan Limited to take steps for construction of the

said plant, it was subsequently contended that the

application filed by Bhushan Limited was premature and could

not, therefore, be acted upon. Specific instances have been

mentioned hereinabove of the steps taken by the various

departments in extending cooperation to Bhushan Limited to

set up its steel plant at Lapanga. To now turn around and

take a stand that the application made by Bhushan Limited

was premature, is not only unreasonable, but completely

unfair to Bhushan Limited, who have already invested large

sums of money in setting up the plant. The State Government

had, on its own volition, entered into the MOU with Bhushan

Limited on 15th May, 2002, and had even agreed to request the

Central Government to allot mining areas and coal blocks for

operating the steel plant. Whatever differences that may

have resulted on account of the dispute within the Bhushan

Group, which could have led to the rethinking on the part of

the State Government, have now been laid to rest by virtue

of the settlement arrived at between the Bhushan Limited

(now BPSL) and BSSL. The State Government has also accepted

the said position. In addition to the above, the action

taken by the State Government appears to us to be highly

unreasonable and arbitrary and also attracts the doctrine of

legitimate expectation. There is no denying the fact that

the Appellants have altered their position to their

detriment in accordance with the MOU dated 15th May, 2002.

Whatever may have been the arrangement subsequently arrived

at between the State Government and BSSL, the original MOU

dated 15th May, 2002, continued to be in existence and

remained operative.

32. The State Government appears to have acted arbitrarily

in requiring Bhushan Limited to enter into a separate MOU,

notwithstanding the existence of the MOU dated 15th May,

2002, which, as mentioned hereinabove, had been acted upon

by the parties.

33. In the light of the above, the High Court erred in

holding that it could not interfere with the decision of the

State Government calling upon the Appellants to sign a fresh

MOU with the Government, during subsistence of the earlier

MOU. Since the State Government has already made allotments

in favour of others in relaxation of the Mineral Concession

Rules, 1960, under Rule 59(2) thereof, no cogent ground had

been made out on behalf of the State to deny the said

privilege to the Appellants as well.

34. Accordingly, we allow the appeal and set aside the

judgment and order of the High Court of Orissa and also the

decision of the State Government dated 9th February, 2006,

rejecting the Appellant's claim for grant of mining lease.

During the course of hearing, we have been informed that

Thakurani Block A has large reserves of iron ore, in which

the Appellants can also be accommodated. We, accordingly,

direct the State of Orissa to take appropriate steps to act

in terms of the MOU dated 15th May, 2002, as also its earlier

commitments to recommend the case of the Appellants to the

Central Government for grant of adequate iron ore reserves

to meet the requirements of the Appellants in their steel

plant at Lapanga.

35. There will be no order as to costs.

...............................................................J.

(ALTAMAS KABIR)

...............................................................J.

(SURINDER SINGH NIJJAR)

New Delhi

Dated:14.03.2012