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Transfer of mining concessions should help trigger M&A activity

By: Probal Bose

Blessed with vast mineral resources and with the growing demand for metals and minerals, mining is one of the key  drivers of the Government’s ‘Make in India’ program.  There has been a concerted effort by the Government to ease the regulatory hurdles in doing business in various sectors and the mining sector has been no exception. The Mines and Minerals (Development and Regulation) Act (“Act”), which sets out the regulatory framework for the mining sector in India, was  amended on 6th May 2016 to enable specific transfer of mining concessions acquired through the non-auction route.

Transfer of mineral concession rights:

“Mineral Concession” includes all mining leases for prospecting areas on an exclusive or non-exclusive basis or for setting up a mining plant, acquired through auction or through the non-auction route, which was not previously allowed. Now, post this 2016 amendment, any mineral concession lease may be transferred as per the procedure laid down in the Act.

The amendment came after the central government received representations from industry associations that the changes brought about by the 2015 amendment prohibited transfer of mining concessions acquired through the non-auction route, while such transfer was permitted for concessions granted through the auction route.

Definition of Leased Area:

The definition of the term “leased area” has also been included in the Act vide the 2016 amendment. This was necessitated post the Supreme Court judgments in the cases of S.P. Samudaya v. State of Karnataka (2013) and Goa Foundation v. Union of India (2014). While in SP Samudaya the Court held that dumping of waste can be done outside the leased area if the agreement for the mineral concession provided for the same, in the Goa Foundation case it  held that dumping of waste had to be done within the leased area itself. This not only created ambiguity in the scope of ‘leased area’ but also dumping waste within the leased area implied the payment of royalty for the same.

The  “leased area” refers to the area specified in the mining concession within which mining operations can be undertaken as well as the non-mineralised area required and approved for the activities falling under the definition of “mine”[1]. The definition of ‘mine’ does not cover dumping of waste. Hence, holders of mining concession will now be able to fully exploit the area leased to them without having to pay any extra royalty for dumping waste in the adjacent area. 

Minerals (Transfer of Mining Lease Granted Otherwise than through Auction for Captive Purpose) Rules, 2016

The amendment also expands the powers of the Central Government to make rules under this Act. The Rules governing transfer of mining concessions granted through the non-auction route have also been laid down. These Rules also provide that such transfer may only be made for “captive use”, i.e., the lessee must use the entire quantity of minerals extracted from the leased area.

The Rules also set out the following:

  1. All approvals and permits have to be obtained by the transferor.

  2. Transferee has to abide by all conditions and liabilities that the transferor was subject to and will be liable to the State and Central governments for all consequences  arising out of the mining concession.

  3. Transferee has to ensure that the entire quantity of the minerals is used for captive purposes and not sold or exported.

  4. The transfer will be deemed to be permitted if there is no response from the State Government within a period of 90 days.

  5. The transferee has to pay the transfer charges, royalty, etc. to the State Government as per the notified rates besides making the requisite contributions to the National Mineral Exploration Trust and the concerned District Mineral Foundation.

Our View:

By taking note of the industry representations made in this regard, the Government appears anxious to boost mining activity in India. The impact of the change in law was soon evident when Ultratech announced their deal with Jaypee, which was stuck earlier due to the prohibition on transfer.

Further, the long overdue clarification with regard to the definitions would also help reduce the possibilities of misinterpretation. The Rules mandate a time-bound process for the transfer with the inclusion of the deemed approval concept which would quicken the process of implementation.

[1] Section 2(j), Mines Act, 1952


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