In a landmark decision, the Chhattisgarh High Court quashed the royalty imposition on “Vanadium Sludge,” ruling that it does not qualify as a mineral under the Mines and Minerals (Development and Regulation) Act, 1957. Justice Bibhu Datta Guru delivered the judgment in the case Bharat Aluminium Company Limited vs. State of Chhattisgarh & Ors., (WP(C) No. 698 of 2015), a decision with potentially wide-reaching implications for the mining industry.
Background of the Case
The petitioner, Bharat Aluminium Company Limited (BALCO), a prominent aluminum manufacturing company with facilities in Korba, Chhattisgarh, contested a 2015 order by the Collector of Korba. The order demanded a payment of INR 863.18 lakhs in royalties for Vanadium Sludge produced between 2001-2006. BALCO argued that Vanadium Sludge is not a naturally occurring mineral but rather a by-product of alumina extraction from bauxite, thereby exempt from royalty under current mineral regulations.
Legal Issues
The primary legal question before the court was whether Vanadium Sludge could be classified as a mineral under the Mines and Minerals (Development and Regulation) Act, 1957. BALCO’s counsel contended that the substance should not be considered a mineral, asserting that:
– Vanadium Sludge, created as a by-product in alumina manufacturing, is not extracted directly from the earth and is instead a processed material resulting from chemical reactions.
– Royalty on minerals, as outlined in Section 9 of the Mines and Minerals Act, is only applicable to natural minerals extracted from leased areas.
– The imposition of royalty, as enforced by the Collector under Rule 27 of the Mineral Concession Rules, 1960, was outside the bounds of authority since Vanadium Sludge is not listed as a mineral in either major or minor schedules of the Act.
The State countered that the broad definition of minerals under Section 3(a) of the Act should encompass Vanadium Sludge, considering it an “associated mineral.” They pointed to the necessity of royalty payments for any economically valuable material resulting from mining processes, per Rule 64B, which mandates royalty on materials processed from leased minerals.
Court’s Decision and Observations
The court ruled in favor of BALCO, determining that Vanadium Sludge does not meet the criteria of a mineral as per legislative definitions and judicial precedents. Justice Bibhu Datta Guru noted:
“Vanadium Sludge, being a by-product of alumina extraction, is not a natural mineral derived from the earth by mining, drilling, or any similar process. It results from human-induced chemical reactions and does not align with the statutory definition of minerals.”
Citing the technical analysis from the Jawaharlal Nehru Aluminium Research Development and Design Centre (JNARDDC), the court emphasized that Vanadium Sludge is a complex sodium vanadate compound formed during alumina processing, rather than a naturally occurring mineral that could warrant royalty. The judge referenced Supreme Court cases that clarified the natural origin required for a substance to be classified as a mineral.
The court also addressed the procedural fairness issues raised by BALCO, acknowledging that the Collector failed to observe due process. According to BALCO, the Collector’s office did not provide the company a copy of the technical opinion used to substantiate the royalty demand, nor did it offer a platform for BALCO to respond. Justice Guru deemed this approach a “serious violation of principles of natural justice.”
Parties and Legal Representation
Representing BALCO was Senior Advocate Ashish Shrivastava, along with Advocates Aman Memon and Udit Khatri. The State of Chhattisgarh’s defense was led by Deputy Government Advocate Upasana Mehta, who argued that Vanadium Sludge qualifies as a mineral, subjecting it to royalty under the Mines and Minerals Act.
