Mining Lease Dispute and Rescission of Contract in Haryana

The case at hand revolves around a mining lease dispute involving M/s. Sunder Marketing Associates (the petitioner) and the State of Haryana. The petitioner, through a joint venture (JV) with Karamjeet Singh and Co. Ltd. (KJSL), had won the bid for a mining lease in Haryana. However, issues arose concerning the lease’s terms, leading to a request for surrender and a legal battle regarding the lease’s rescission.

Background: On December 30, 2013, the petitioner’s JV placed the highest bid for the Dadam quarry in Bhiwani district, Haryana, with a bid amount of Rs. 115 crores per annum. The lease agreement stipulated that the lease period would commence after obtaining environmental clearance, and no transfer of the lease was allowed within the first five years. The JV was, however, granted the lease, with KJSL holding 51% of the share and the petitioner holding 49%. This arrangement, despite the petitioner’s ineligibility to bid independently, marked the beginning of a complex legal issue.

Petitioner’s Argument: The petitioner sought to rescind the contract after the Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) was granted a mining lease in a different area at a lower rate. The petitioner argued that the failure to disclose this to the JV created an unfair advantage for HSIIDC, causing significant harm to their commercial interests. Additionally, the petitioner, after learning of KJSL’s decision to rescind its share, sought the transfer of KJSL’s 51% share to itself or the induction of a new partner in place of KJSL.

Respondent’s Argument: The State Government, through its counsel, contended that the petitioner, by itself, was not qualified to participate in the auction, and it was the JV that had met the qualifications. The State argued that despite this, the petitioner’s request to take over KJSL’s share was legally inappropriate, as it violated the conditions of the lease. The government proposed that any such transfer would only occur subject to compliance with the relevant rules and legal formalities.

Court’s Ruling: The Supreme Court acknowledged the unusual situation where one partner in a JV wished to rescind the contract while the other wished to continue. The Court noted the discrepancies in how the lease had been handled, particularly with the transfer of shares from KJSL to the petitioner, which violated the original terms of the auction notice. The Court remarked on the potential influence exerted by the petitioner in securing this transfer, despite the initial ineligibility to bid independently.

Key Points from the Judgment:

• The Court highlighted the procedural and legal issues surrounding the transfer of the lease and the failure to comply with the original contract conditions.
• Despite the irregularities, the Court allowed the petitioner to continue mining operations until November 30, 2017, provided they complied with mine closure plans and paid all dues.
• The Court ensured the petitioner’s compliance with payment obligations, including wages to employees and fees to the State Government, while maintaining the sanctity of the legal process.
• The judgment also held the Chief Secretary of Haryana accountable for ensuring the proper enforcement of laws related to the mining operations.
• The petitioner was further restrained from transferring assets or encumbrances related to the mining operations to safeguard the State’s interests.

Conclusion: This case highlights the legal intricacies of mining lease agreements and the challenges faced by companies when issues of eligibility, unfair competition, and improper transfers arise. The Court’s intervention ensures that despite the petitioner’s undue influence, the law prevails and adherence to contractual obligations is upheld. The judgment emphasizes the importance of transparency in government dealings, especially in sectors as critical as mining, and the need for compliance with both legal and environmental regulations.

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Download Judgment: Ms. Sunder Marketin vs State of Haryana Supreme Court of India Judgment Dated 11-08-2017.pdf