State Of Rajasthan & Anr vs J.K. Synthetics Ltd. & Anr

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4927 OF 2011

[Arising out of SLP [C] No.15621/2007]

State of Rajasthan & Anr. ... Appellants

Vs.

J.K.Synthetics Ltd. & Anr. ... Respondents

WITH

C.A. No. 4928 of 2011 (Arising out of SLP [C] No.15259/2007);

C.A. No. 4929 of 2011 (Arising out of SLP [C] No.15260/2007);

C.A. No. 4931 of 2011 (Arising out of SLP [C] No.15407/2007);

C.A. No. 4930 of 2011 (Arising out of SLP [C] No.15873/2007), and

C.A. No. 4932 of 2011 (Arising out of SLP [C] No.6417/2010).

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted.

2. In these appeals by special leave, the appellants challenge the orders

of the Division Bench of the Rajasthan High Court, dismissing its appeals

against a common order of the learned Single Judge, restricting the interest

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on arrears of royalty to 12% per annum, instead of 24% per annum

demanded by the State of Rajasthan.

3. The first respondent in each of these appeals is or was the holder of a

mining lease for limestone. Section 9 of the Mines and Minerals

(Development and Regulation) Act, 1957 (`Act' for short) deals with

Royalties in respect of mining leases. Sub-section (2) thereof requires the

holder of a mining lease to pay royalty in respect of any mineral removed or

consumed by him from the leased area at the rate for the time being

specified in the Second Schedule to the Act, in respect of that mineral. Sub-

section (3) thereof empowers the Central Government, by notification

published in the official gazette, to amend the Second Schedule so as to

enhance the rates at which royalty shall be payable in respect of any mineral

with effect from such date as may be specified in the notification.

4. By notification dated 5.5.1987, the Central Government had amended

the Second Schedule to the Act and increased the royalty in respect of

(limestone) from Rs.4.50 per tonne to Rs.10 per tonne. By a subsequent

notification dated 17.2.1992, the Second Schedule to the Act was again

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amended and the rate or royalty for limestone was increased from Rs.10/-

per tonne to Rs.25/- per tonne.

5. The respective first respondent in these appeals (together referred to

the `contesting respondents') filed writ petitions challenging the

constitutional validity of section 9(3) of the Act and the notification dated

17.2.1992 increasing the rate of royalty from Rs.10 to Rs.25 per tonne. In all

the cases (except in the case of J. K. Udaipur Udyog Ltd), the High Court

issued interim orders directing the state government not to take coercive

steps to recover royalty at the rate of Rs.25 per metric tonne in pursuance of

notification dated 17.2.1992, subject to the writ petitioners paying royalty at

the rate of Rs.10 per MT and furnishing bank guarantee for the difference of

Rs.15 per MT. In the case of J. K. Udaipur Udyog Ltd, the High Court made

an interim order as in the other cases, with an additional condition that in

case the said writ petitioner ultimately failed in the writ petition, the

difference amount due from the writ petitioner shall be recovered with

interest at the rate of 18% per annum.

6. Ultimately, the several writ petitions filed by the contesting

respondents challenging the section 9(3) of the Act and the notification dated

17.2.1992 increasing the royalty, were dismissed in the year 1996 following

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the decision of this Court in State of Madhya Pradesh vs. Mahalaxmi Fabric

Mills Ltd.,- 1995 Supp (1) SCC 642, wherein this Court had upheld the

validity of section 9(3) of the Act and the notification revising the rate of

royalty. As a consequence of such dismissal, each of the contesting

respondents claims to have paid the difference in royalty (that is at the rate

of Rs.15/- per MT) in the years 1996-1997.

7. Rule 64-A of the Minerals Concession Rules, 1960 (`Rules' for short)

provides for levy of interest on arrears of royalty and other dues and the

same is extracted below :

"64-A. The State Government may, without prejudice to the provisions

contained in the Act or any other rule in these rules, charge simple interest

at the rate of 24% per annum on any rent, royalty or fee, other than the fee

payable under sub-rule (1) of Rule 54, or other sum due to that

government under the Act or these rules or under the terms and conditions

of any prospecting licence or mining lease from the sixtieth day of the

expiry of the date fixed by that government for payment of such royalty,

rent, fee or other sum and until payment of such royalty, rent, fee or other

sum is made."

8. The State of Rajasthan issued the following demand notices to the

contesting respondents calling upon them to pay interest at the rate of 24%

per annum under Rule 64-A of the Rules, on the difference in royalty which

had been withheld on account of the interim orders obtained by them and

which were belatedly paid, after rejection of their writ petitions :

5 SNo. Name of Lessee Writ Petition Interest Date of Demand

Number (where stay Demanded

was obtained) (in Rupees)

1. J. K. Synthetic Ltd WP No. 5721/1992. 6,98,54,031 6.11.1997

2. Birla Corporation Ltd. WP No. 6008/1992 5,99,81,784 24.7.1997

3. J. K. Udaipur Udyog Ltd. WP No. 3871/1993 1,12,76,364 12.3.1997

4. J. K. Synthetic Ltd WP No. 5300/1992. 20,04,474 24.7.1997

5. J. K. Corporation Ltd WP No. 5202/1992. 1,83,10,418 4.11.1996

6. Shree Cement Ltd. WP No. 5004/1992 2,91,89,622 21.1.1997

9. The contesting respondents at this stage again filed a second round of

writ petitions challenging the notices demanding interest, contending that

they were not liable to pay interest. They also challenged the validity of Rule

64-A of the Rules. During the pendency of those petitions, this Court in

South Eastern Coalfields Ltd. vs. State of M.P. - 2003 (8) SCC 648, upheld

the validity of Rule 64A. On the peculiar facts of that case which were

noticed in para 30 of the said judgment, this Court held that it will not

interfere, in exercise of the jurisdiction under Article 136 of the Constitution

of India, the discretion exercised by the High Court in reducing the rate of

interest from 24% per annum to 12% per annum making it clear that the

same shall not however be treated as precedent in any other case. After the

said decision, what remained to be considered in the writ petitions filed by

the contesting respondent was the rate of interest. The contesting

respondents as writ petitioners submitted before the learned Single Judge

that the claim for interest at 24% per annum was harsh, excessive and

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inequitable, and interest should not be charged at a rate higher than 9% per

annum. They relied upon the decision of this court in Saurashtra Cement

and Chemical Industries Ltd., vs. Union of India - 2001 (1) SCC 91, where

this court had reduced the rate of interest on unpaid royalty imposed by the

High Court (18% per annum) to 9% per annum. The learned Single Judge

allowed the writ petitions of the six contesting respondents in part, by

common order dated 11.8.2005. He noted that the Advocate General had

submitted that the State Government was entitled to interest at 18% per

annum. The learned Single Judge noted that the trend of directions by the

Supreme Court showed that State should get interest at least at the rate of

12% per annum on the delayed payments. Consequently, he upheld the

demand for interest only to an extent of 12% per annum and set aside the

demand for the interest at the higher rate of 24% per annum, with a

condition that if interest at 12% per annum on the delayed payments was not

paid within three months, the respective writ petitioners shall be liable to

pay interest at 24% per annum. It is stated by the contesting respondents that

all of them have paid the interest at the rate of 12% per annum on the

delayed payments, within three months period. Be that as it may.

7 10. The state government filed intra-court appeals challenging the order

of the learned Single Judge. A Division Bench of the High Court has

dismissed those appeals by the impugned orders dated 14.11.2009,

13.11.2006, 13.11.2006, 13.3.2007, 14.11.2006 and 4.11.2009, on the

ground that the order of the learned Single Judge was based on an

admission/concession by the learned Advocate General and therefore, the

order did not call for interference. The said orders are challenged in these

appeals by special leave by the state government.

11. On the contentions raised, the following questions arise for

consideration :

(i) Whether the Advocate General appearing for the State had consented

to award of interest at 12% per annum?

(ii) When the High Court grants an interim stay of a demand for payment

of money, in a writ petition challenging the levy which is ultimately

dismissed, without any specific direction for payment of interest, whether

the respondent can claim interest on the amount due for the period covered

by the interim order?

(iii) Whether Rule 64-A vests any discretion in the state government to

charge interest at a rate less than 24% per annum in appropriate or deserving

cases?

(iv) Whether the rate of interest awarded at 12% per annum requires to be

increased?

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Re : Question (i)

12. The first question is whether the order of the learned Single Judge is

based on any consent and whether the learned Advocate General appearing

for the state had conceded that the state government is entitled to interest at

only 12% per annum. We extract below the relevant portion of the order of

the learned Single Judge, where there is a reference to the submission made

of the learned Advocate General :

"On the other hand, the learned Advocate General submits that the state

government is entitled for the rate of interest @ 18% per annum but even

looking to the present trend of Hon'ble Supreme Court, Government must

at least get interest @12% per annum on the delayed payment of the

difference royalty amount as has been awarded by the Hon'ble Supreme

Court in South Easter Coalfields case (supra).

Having heard the learned (counsel) for the parties, I am of the view that in

the facts and circumstances of the present case, the demand of interest @

12% per annum would meet the ends of justice in the light of the Apex

Court judgement in South Eastern Coalfields case (supra)."

The only submission of the Advocate General before the learned Single

Judge was that the State Government was entitled to interest at the rate of

18% per annum. The further observation that as per the trend of Supreme

Court decision, the state government should get interest at least at the rate of

12% per annum on the delayed payments, as awarded in the decision in

South Eastern Coalfields, is an observation of the learned Single Judge, and

not a concession by the learned Advocate General. Further, subsequent para

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of the order of the learned Single Judge makes it clear beyond doubt that the

order was not on consent or concession, but is made on merits following the

decision of this Court in South Eastern Coalfields. Therefore, the

assumption by the Division Bench of the High Court that the learned

Advocate General had made a concession and the order of the learned Single

Judge was a consent order and therefore, it was not open for the State

Government to challenge the order of the learned Single Judge, is obviously

erroneous. The order of the Division Bench cannot therefore be sustained.

13. Even if it is assumed that the learned Advocate General had submitted

that "looking to the present trend of the decision of Supreme Court",

Government should at least get interest at the rate 12% per annum on the

delayed payment of difference in royalty amount as had been awarded in

South Eastern Coalfields, that would neither be an admission nor a

concession that the state government is entitled to interest only at the rate of

12% per annum in regard to the rate of interest. It would be nothing more

than a statement made with reference to the decision in South Eastern

Coalfields and such a statement would not come in the way of order being

challenged if the state government is of the view that it is entitled to get a

higher rate of interest.

10 Re : Question (ii)

14. The contesting respondents filed the second round of writ petitions

before the High Court challenging the demand for interest and the validity of

Rule 64A, on two grounds : that Rule 64-A was invalid; that the rate of

interest was excessive. The learned Single Judge negatived the first

contention in view of the decision of this South Eastern Coalfields. He

however accepted the second contention and restricted the rate of interest to

12% per annum. The contesting respondents have not challenged the order

of the High Court holding that they are liable to pay interest at 12% per

annum. They have in fact paid the interest at such rate. Before us, one of the

contentions urged to resist the claim of the State for increase in the rate of

interest, is with reference to the fundamental question about the liability

itself. It was submitted that they were not liable to pay interest on the

increase in royalty amount, in view of their challenge to the increase and

order of interim stay of the High Court. It was submitted by the contesting

respondents, that even if the writ petitions challenging the notification dated

17.2.1992 revising the royalty rate were ultimately dismissed, in the absence

of any specific direction by the High Court to pay interest on the difference

in royalty amount, they were not liable to pay any interest during the period

of operation of stay. This question is no longer res integra. We may refer to

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the decisions of this Court that have categorically laid down about the

liability to pay interest for the period of stay when the stay is ultimately

vacated.

15. In Kanoria Chemicals and Industries Ltd. vs. UP State Electricity

Board - 1997 (5) SCC 772, this Court held that grant of stay of a

notification revising the electricity charges does not have the effect of

relieving the consumer of its obligation to pay interest (or late payment

surcharge) on the amount withheld by them by reason of the interim stay, if

and when the writ petitions are dismissed ultimately. The said principle was

based on the following reasoning :

"Holding otherwise would mean that even though the Electricity

Board, which was the respondent in the writ petitions succeeded

therein, is yet deprived of the late payment surcharge which is due to

it under the tariff rules/regulations. It would be a case where the

Board suffers prejudice on account of the orders of the court and for

no fault of its. It succeeds in the writ petition and yet loses. The

consumer files the writ petition, obtains stay of operation of the

Notification revising the rates and fails in his attack upon the validity

of the Notification and yet he is relieved of the obligation to pay the

late payment surcharge for the period of stay, which he is liable to pay

according to the statutory terms and conditions of supply - which

terms and conditions indeed form part of the contract of supply

entered into by him with the Board. We do not think that any such

unfair and inequitable proposition can be sustained in law.......

It is equally well settled that an order of stay granted pending disposal of a

writ petition/suit or other proceeding comes to an end with the dismissal of

the substantive proceeding and that it is the duty of the court in such a case

to put the parties in the same position they would have been but for the

interim orders of the court. Any other view would result in the act or order

of the court prejudicing a party (Board in this case) for no fault of its and

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would also mean rewarding a writ petitioner in spite of his failure. We do

not think that any such unjust consequence can be countenanced by the

courts. As a matter of fact, the contention of the consumers herein,

extended logically should mean that even the enhanced rates are also not

payable for the period covered by the order of stay because the operation

of the very notification revising/enhancing the tariff rates was stayed.

Mercifully, no such argument was urged by the appellants. It is

ununderstandable how the enhanced rates can be said to be payable but not

the late payment surcharge thereon, when both the enhancement and the

late payment surcharge are provided by the same Notification - the

operation of which was stayed."

(emphasis supplied)

The above principles have been followed and reiterated by this Court in

Rajasthan Housing Board vs. Krishna Kumari - 2005 (13) SCC 151 and

Nav Bharat Ferro Allays Ltd vs. Transmission Corporation of Andhra

Pradesh Ltd - 2011 (1) SCC 216.

16. The same question was considered by this Court, when examining the

constitutional validity of Rule 64-A in South Eastern Coalfields. This Court

held that Rule 64-A providing for payment of interest at the rate of 24% per

annum, was valid. In that case also, it was contended before this Court that

non-payment of the increased amount of royalty was protected by the

interim orders of the High Court and therefore, they should not be held liable

for payment of interest so long as the money was withheld under the

protective umbrella of the interim orders. It was further contended that

merely because the writ petition was finally dismissed, it does not follow

13

that the interim order becomes vitiated or erroneous, as it may still be a

perfectly justified interim order. It was further argued that as they had shown

their bona fides by paying the difference in royalty immediately after the

validity of the notification dated 17.2.1992 was upheld, they could not be

made liable to pay interest. All these contentions were rejected by this Court

on the ground that the principle of restitution was a complete answer to the

said submissions. This Court held :

"The principle of restitution has been statutorily recognized in Section 144

of the Code of Civil Procedure, 1908. Section 144 of the CPC speaks not

only of a decree being varied, reversed, set aside or modified but also

includes an order on par with a decree. The scope of the provision is wide

enough so as to include therein almost all the kinds of variation, reversal,

setting aside or modification of a decree or order. The interim order passed

by the Court merges into a final decision. The validity of an interim order,

passed in favour of a party, stands reversed in the event of final decision

going against the party successful at the interim stage. Unless otherwise

ordered by the Court, the successful party at the end would be justified

with all expediency in demanding compensation and being placed in the

same situation in which it would have been if the interim order would not

have been passed against it. The successful party can demand (a) the

delivery of benefit earned by the opposite party under the interim order of

the court, or (b) to make restitution for what it has lost; and it is the duty of

the court to do so unless it feels that in the facts and on the circumstances

of the case, the restitution would far from meeting the ends of justice,

would rather defeat the same. Undoing the effect of an interim order by

resorting to principles of restitution is an obligation of the party, who has

gained by the interim order of the Court, so as to wipe out the effect of the

interim order passed which, in view of the reasoning adopted by the court

at the stage of final decision, the court earlier would not or ought not to

have passed. There is nothing, wrong in an effort being made to restore the

parties to the same position in which they would have been if the interim

order would not have existed."

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17. It is therefore evident that whenever there is an interim order of stay

in regard to any revision in rate or tariff, unless the order granting interim

stay or the final order dismissing the writ petition specifies otherwise, on the

dismissal of the writ petition or vacation of the interim order, the beneficiary

of the interim order shall have to pay interest on the amount withheld or not

paid by virtue of the interim order. Where the statute or contract specifies

the rate of interest, usually interest will have to be paid at such rate. Even

where there is no statutory or contractual provision for payment of interest,

the court will have to direct the payment of interest at a reasonable rate, by

way of restitution, while vacating the order of interim stay, or dismissing the

writ petition, unless there are special reasons for not doing so. Any other

interpretation would encourage unscrupulous debtors to file writ petitions

challenging the revision in tariffs/rates and make attempts to obtain interim

orders of stay. If the obligation to make restitution by paying appropriate

interest on the withheld amount is not strictly enforced, the loser will end up

with a financial benefit by resorting to unjust litigation and winner will end

up as the loser financially for no fault of his. Be that as it may.

15 Re : Question (iii)

18. The contesting respondents contended that Rule 64A provides that the

state government "may" charge simple interest at the rate of 24% per

annum; that this being an enabling provision, there is no `mandate' or

compulsion to charge interest at 24% per annum; and that therefore, the state

government has the discretion to charge interest at a rate lesser than 24% in

appropriate deserving cases. It is submitted that if the legislative intent was

to provide for interest at the rate of 24% per annum in all cases of delayed

payment of royalty/rent/fees without exception, the rule would have been

differently worded, and read as follows : "wherever any rent, royalty or fee

or other sum due to the government under the Act or the rules or under any

prospecting licence or mining lease, is not paid by the due date, the lessee or

licensee shall pay interest on the delayed payment at the rate of 24% per

annum". It is submitted by the respondents that the word "may" used in the

Rule, should be read as vesting a discretion in the government to charge

interest or not to charge interest, and if interest is to be charged, at any rate

not exceeding 24% per annum.

19. A careful reading of the Rules makes it clear that no such discretion is

given to the state government in regard to rate of interest. This will be

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evident from a combined reading of Rules 31 and 27 and the terms of the

statutory form of lease deed (Form K), with Rule 64A. Rule 31 provides that

where, an order has been made for the grant of a mining lease, a lease deed

in Form K (or in a form as near thereto as circumstances of each case may

require), shall be executed. Rule 27 specifies that every mining lease shall be

subject to the conditions mentioned therein. Clause (5) of Rule 27 refers to

determination :

"(5). If the lessee makes any default in the payment of royalty as

required under section 9 or payment of dead rent as required under section

9A or commits a breach of any of the conditions specified in sub-rules (1),

(2) and (3), except the condition referred to in clause (f) of sub-rule (1),

the state government shall give notice to the lessee requiring him to pay

the royalty or dead rent or remedy the breach, as the case may be, within

sixty days from the date of the receipt of the notice and if the royalty or

dead rent is not paid or the breach is not remedied within the said period,

the state government may, without prejudice to any other proceedings that

may be taken against him, determine the lease and forfeit the whole or part

of the security deposit."

The above provision is accordingly incorporated in clause (2) of Part IX of

the standard form of lease (Form K).

20. The rate of interest at 24% was substituted in clause (3) of Part VI

of the standard form of lease, by the very same amendment which

substituted the said percentage in Rule 64A namely, GSR 129 (E) dated

20.2.1991. The words "may charge simple interest" in Rule 64A should be

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read in the context of the words "without prejudice to the provisions of the

Act or any other Rule in these Rules". As noticed above, Rule 45(iv)

requires the lease deed to contain a condition that if there is any default in

the payment of royalty, the lessor without prejudice to any proceeding that

may be taken against the lessee, determine the lease. Therefore, the word

"may" used with reference to the words "charge simple interest at the rate of

24% per annum" when read with the words "without prejudice to the

provisions contained in the Act or any other Rule", occurring in Rule 64A,

make it clear that whenever rent/royalty/fee becomes due, the lessor has

several options by way of remedy. The lessor may determine the lease, if the

breach is not rectified, even after sixty days' notice to rectify the breach.

Alternatively, instead of determining the lease, the rule gives the choice to

charge interest at 24% per annum on the amounts due. The third alternative

for the state government is to determine the lease and also charge interest at

24% per annum on the outstanding dues. The word `may' is used in Rule 64-

A not in the context of giving discretion in regard to rate of interest to be

charged, but to give an option or choice to the State Government as to

whether it should determine the lease, or charge interest at 24% per annum,

or do both. Therefore, where the lease is not determined as a consequence of

the default, the State will have to charge interest at 24% per annum on the

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outstanding amount. If Rule 64A is to be interpreted as giving any

discretion, that too unguided discretion, to the authorities to charge any rate

of interest, as it would result in misuse and abuse. In this view of the matter,

the contentions urged by the parties as to whether the word "may" should be

read as "must" or "shall", and, if so, in what circumstances, do not arise for

consideration at all.

21. There is also other material in the Rules itself to show that the rate of

interest mentioned in Rule 64A was not intended to be flexible and that the

rate of interest mentioned therein has to be applied in all cases of non-

payment/default. When Rule 64A was amended by notification dated

20.2.1991, increasing the rate of interest to 24% per annum, clause (3) of

Part IV of the standard form of lease (Form K) was also amended increasing

the rate of interest payable on all dues as 24% per annum. We extract below

clause (3) of Part VI of Form K for ready reference :

"3. Should any rent, royalty or other sums due to the State Government

under the terms and conditions of these presents be not paid by the

lessee/lessees within the prescribed time, the same, together with simple

interest due thereon at the rate of twenty four per cent per annum may be

recovered on a certificate of such officer as may be specified by the State

Government by general or special order, in the same manner as an arrears

of land revenue."

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The said clause in Form K makes it clear that the rate of interest should be

24% per annum and there is no discretions in the state government to charge

interest at any lesser rate.

22. It is true that annual interest at 24% per annum appears to be

marginally higher than the standard market lending rate of interest. But it is

not penal in nature. Revenue from mining constitutes one of the major

sources of non-tax revenue of the State Governments. Mining lessees are

expected to pay the mining dues promptly and without default. If a lesser

rate of interest is provided under the Rules, it may lead to unscrupulous

lessees indulging in delaying tactics. The intention of Rule 64A is to

discourage practices that may be detrimental to recovery of revenue, by

providing for a higher rate of interest. Hence, once the State Government

chooses not to take the path of determining the lease, charging of interest at

24% is mandatory and leaves no discretion in the State Government in

regard to rate of interest.

Re : Question (iv)

23. This brings us to the last question as to what should be the rate of

interest. We have seen that Rule 64-A categorically provides that where a

mining lessee who is liable to pay rent or any other dues, fails to pay the

20

same, the state government will be entitled to charge simple interest thereon

at 24% per annum. The validity of this rule has been upheld by this Court in

South Eastern Coalfields. Therefore interest on all delayed payments should

be 24% per annum.

24. The contesting respondents submitted that even if the rate of interest

under Rule 64-A is 24% per annum, when the liability (on account of

increase in Royalty) is under challenge and the matter is pending in court

and there is an interim stay of the increase, the liability to pay interest will

be within the discretion of the court and court can award a lesser rate. They

relied upon the decisions of this Court in Saurashtra Cement (supra) and the

decision in South Eastern Coalfields, that the interest should not be more

than 9% or 12% per annum, for the period when the stay was in operation.

25. In South Eastern Coalfields which upheld the validity of Rule 64-A,

this Court did not interfere with the decision of the High Court awarding

interest at 12% per annum, on the following reasoning :

"So far as the appeal filed by the State of Madhya Pradesh seeking

substitution of rate of interest by 24% per annum in place of 12% per

annum as awarded by the High Court is concerned, we are not inclined to

grant that relief in exercise of our discretionary jurisdiction under Article

136 of the Constitution especially in view of the opinion formed by the

High Court in the impugned decision. The litigation has lasted for a long

21

period of time. Multiple commercial transactions have taken place and

much time has been lost in between. The commercial rates of interest

(including bank rates) have undergone substantial variations and for quite

sometime the bank rate of interest has been below 12%. The High Court

has, therefore, rightly (and reasonably) opined that upholding entitlement

to payment of interest at the rate of 24% per annum would be excessive

and it would meet the ends of justice if the rate of interest is reduced from

24% per annum to 12% per annum on the facts and in the circumstances of

the case. We are not inclined to interfere with that view of the High Court

but make it clear that this concession is confined to the facts of this case

and to the parties herein and shall not be construed as a precedent for

overriding Rule 64A of the Mineral Concession Rules, 1960. It is also

clarified that the payment of dues should be cleared within six weeks from

today (if not already cleared) to get the benefit of reduced rate of interest

of 12%; failing the payment in six weeks from today the liability to pay

interest @24% per annum shall stand."

(emphasis supplied)

Therefore, it is clear that the concession extended in that case by permitting

interest only at 12% per annum was confined to the facts of that case and to

the parties therein and is not be treated as a precedent, for nullifying or

overriding Rule 64-A of the Rules.

26. In Saurashtra Cement, while dismissing the appeals challenging the

validity of the increase in royalty following the decision in Mahalaxmi

Fabric Mills (Supra), this Court dealt with a case, where the High Court had

granted interim stay of the notification regarding increase in royalty but

however while vacating the interim order and discharging the rule, had

directed the payment of interest at 18% per annum. Pattanaik J., (as he then

22

was) in the last line of his order reduced the rate of interest to 9% per annum

without assigning any specific reason, except observing that 18% was

unreasonable. In his concurring judgment, Banerjee J., observed as under :

"The imposition of 18% interest with yearly rests cannot in our view find

support in the contextual facts since the validity of the legislation itself is

in question before this Court. The payment of interest being in the

discretion of the court, we, therefore, do not wish to interfere with the

award of interest, as such though the rate at which it has been awarded

needs some modification in the contextual facts and as such we direct that

the rate of interest be 9% simple interest and not as directed by the High

Court."

(emphasis supplied)

A careful reading of the said judgment shows that while deciding the issue

of interest, this Court had overlooked Rule 64-A which is a statutory

provision entitling the government to claim interest at 24% per annum. This

Court apparently proceeded on the basis that there was no statutory or

contractual provision for the payment of interest, and therefore, question of

interest was wholly within the discretion of the court. Therefore, the said

decision may not also be of any assistance.

27. We find that the decision in Kanoria Chemicals (supra) throws

considerable light on the logic behind court's discretion in awarding interest

in such cases. That case, as noticed earlier, dealt with increase in electricity

charges. The relevant provision specifically provided that in regard to

23

delayed payments of the bills, the consumer shall pay additional charge per

day of seven paisa per hundred rupees on the unpaid amount of the bill,

which works out to 25.55% per annum. This Court reduced the same to 18%

per annum on the following reasoning :

"Sri Vaidyanathan then contended that the rate of "late payment

surcharge" provided by clause 7(b) is really penal in nature inasmuch as it

works out to 25.5 per cent per annum. The learned counsel also submitted

that the petitioners understood the decision in Adoni Ginning as relieving

them of their obligation to pay interest for the period covered by the

interim order and that since they were acting bona fide they should not be

mulcted with such high rate of interest. We cannot agree that the rate of

late payment surcharge provided by clause 7(b) is penal, but having

regard to the particular facts and circumstances of this case and having

regard to the fact that petitioners could possibly have understood the

decision in Adoni Ginning as relieving them of their obligation to pay

interest/late payment surcharge for the period of stay, we reduce the rate

of late payment surcharge payable under clause 7(b) to eighteen per cent.

But this direction is confined only to the period covered by the stay orders

in writ petitions filed challenging the notification dated 21.4.1990 and

limited to 1.3.1993 the date on which those writ petitions were

dismissed."

(emphasis supplied)

Therefore, whenever there is a challenge to a levy or challenge to an

increase in the tariff or rates, and an order of interim stay of recovery is

made in the said writ proceedings and the writ petition is ultimately rejected,

the court should invariably award interest by way of restitution. Where the

statute or contract prescribed a specific rate of interest, the court should

normally adopt such rate while awarding interest, except where the court

24

proposes to award a higher or lower rate of interest, for special and

exceptional reasons.

28. Let us consider whether there are any special or exceptional

circumstances for reducing the statutory interest in this case. In the case of

one of the contesting respondents (J. K. Udaipur Udyog Ltd.), there was a

categorical direction while granting interim stay that in the event of failure

in the writ petition the writ petitioner will have to pay interest at the rate of

18% per annum. That was a condition of interim order and therefore, it is

possible that the parties bona fide proceeded on the basis that interest will be

only 18% per annum. In the writ petitions of other contesting respondents,

there was no such condition regarding interest while granting the stay. But

as pointed out in Kanoria Chemicals, it is possible that the contesting

respondents thought, by reason of the fact that there was no condition for

payment of interest while granting stay, they may not be required to pay the

statutory rate of interest. More importantly, the learned Advocate General

appearing for the State had made a submission before the learned Single

Judge that state government was entitled to interest only at the rate of 18%

per annum. In the peculiar and special circumstances of these cases, we are

of the view that the appellants will be entitled to interest at 18% per annum

25

in respect of royalty that became due between 17.2.1992 and the date of

dismissal of their respective writ petitions. For the period subsequent to the

dismissal of the writ petitions, the contesting respondents will be liable to

pay interest on the said amount, at the rate of 24% per annum till date of

payment.

29. The contesting respondent in the last case (Shree Cement) raised an

additional contention. It was submitted that clause VI(iii) of the Lease Deed

in its case provided that any royalty which was not paid within the

prescribed time shall be paid with simple interest at the rate of 10% per

annum. It is therefore contended that the interest on any arrears cannot be

more than 10% per annum in its case. The lease is governed by the Minerals

and Concessions Rules 1960 and execution of the lease deed is itself is in

compliance with one of the requirement of the rules, namely Rule 31. Once

Rule 64A was amended by notification dated 20.2.1991 increasing the rate

of interest to 24% per annum, any term in the lease deed prescribing a lesser

rate of interest, shall have to yield to Rule 64-A from that date as the rule

will prevail over the terms of the lease. This position is evident from the

decision in South-Eastern Coalfields also.

26 Conclusion

30. In view of the above, we allow these appeals in part and modify the

rate of interest in each case as under :

(i) from 17.2.1992 to the date of dismissal of the respective writ petition

(challenging the notification dated 17.2.1992), the rate of interest shall be

18% per annum on the arrears of royalty etc.; and

(ii) from the date of dismissal of the writ petition till date of payment, the

rate of interest shall be 24% per annum.

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

(R V Raveendran)

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

(P. Sathasivam)

New Delhi; .............................J.

July 4, 2011. (A.K. Patnaik)