Mahanadi Coalfields Ltd. vs. State of Odisha: Supreme Court Upholds Land Compensation Demand

The case of Mahanadi Coalfields Ltd. vs. State of Odisha & Others revolved around a long-standing legal dispute over land acquisition and compensation. The Supreme Court, in its judgment dated January 20, 2023, addressed the crucial question of whether the State Government is entitled to demand compensation, premium, and rentals over and above the royalty for lands acquired by the Central Government under the Coal Bearing Areas (Acquisition and Development) Act, 1957.

The appellant, Mahanadi Coalfields Ltd., challenged the Odisha High Court’s order, which upheld the State Government’s claim for Rs. 70 lakhs as a premium for government land and Rs. 40 lakhs as compensation. The company argued that once the land vests in the Central Government, the State Government is not entitled to any amount except for the royalty payable under Section 18(a) of the Act. However, the Supreme Court rejected this contention and upheld the High Court’s ruling.

Background of the Case

The dispute arose when the Odisha State Government demanded compensation from Mahanadi Coalfields Ltd. for lands acquired under the Coal Bearing Areas Act, 1957. The appellant contended that once the land is vested in the Central Government and subsequently transferred to a government company, the State Government ceases to have any claim over it except for the royalty payable under Section 18(a).

Key Legal Provisions Involved

Section 9: When the Central Government issues a declaration, the land or rights over it vest absolutely in the Central Government free from all encumbrances.
Section 10: Provides that once the land is vested in the Central Government, it is free from any claims.
Section 11: Allows the Central Government to transfer such lands to a government company under specified conditions.
Section 18(a): Introduced in 1971, it provides that the State Government shall receive royalty for minerals extracted from the land.

Petitioner’s Arguments

The counsel for Mahanadi Coalfields Ltd. put forward the following arguments:

The State Government’s demand for premium, rentals, and compensation was illegal as the land had vested absolutely with the Central Government.
Section 18(a) of the Act explicitly states that the only entitlement of the State Government is the royalty and nothing beyond that.
Once the Central Government has acquired the land, the State Government ceases to have any proprietary rights over it.

Respondent’s Arguments

The State of Odisha opposed the appeal and contended:

The State Government was the original owner of the land, and even after vesting, it was entitled to compensation, rentals, and premium as it had lost proprietary rights.
Section 18(a) only grants royalty for extracted minerals but does not prohibit the State from claiming other dues.
The High Court had correctly interpreted Section 2(d) of the Act to hold that the State Government was a ‘person interested’ in the land and hence entitled to compensation.

Supreme Court’s Ruling

The Supreme Court, comprising Justice M.R. Shah and Justice C.T. Ravikumar, made the following observations:

“The State Government being the original owner can be said to be the person interested and a deemed lessor. Therefore, it is entitled to compensation, rentals, and premium over and above the amount of royalty.”

Read also: https://judgmentlibrary.com/supreme-court-directs-ongc-to-complete-land-acquisition-in-ahmedabad/

The Court held that:

Under Section 11(2) of the Act, the government company to whom the land is transferred is deemed to be the lessee of the State Government.
The demand for compensation and rentals is justified as it arises from the loss of the State Government’s proprietary rights over the land.
Royalty under Section 18(a) is separate from the compensation and does not negate the State Government’s right to claim losses arising from the transfer of land.

Significance of the Judgment

The ruling has far-reaching implications for land acquisition laws and compensation mechanisms under the Coal Bearing Areas Act. It clarifies that State Governments retain certain financial entitlements even after land is vested in the Central Government.

Conclusion

With this judgment, the Supreme Court has reaffirmed the rights of State Governments to seek compensation for land acquired under the Coal Bearing Areas Act. While mining companies remain liable for royalties, they must also account for additional financial obligations such as rentals and premiums where applicable.

The Supreme Court’s dismissal of the appeal sets a precedent ensuring that compensation principles are fairly upheld in large-scale land acquisitions.

Petitioner Name: Mahanadi Coalfields Ltd..
Respondent Name: State of Odisha & Others.
Judgment By: Justice M.R. Shah, Justice C.T. Ravikumar.
Place Of Incident: Odisha, India.
Judgment Date: 20-01-2023.

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