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Judgment
Mohan, J.—Both these cases may be dealt with under a common order. The facts are as follows: Under the Ministry of Shipping and
Transport, Government of India, a larger Harbour Project was taking shape in the Port of Tuticorin. Tenders were called for in the year 1969 for
the construction of certain civil works. The tender of the revision petitioner in C.R.P. 3920 of 1981 (appellant in C.M.A. 615 of 1981) was
accepted and a contract was entered into between him and the Chief Engineer and Administrator, representing the President of India. The contract
for the construction of the South Breakwater, Eastern Arm, Wharf Wall Reclamation, Dredging and pier head was signed under an agreement,
dated 19th August, 1970. An addendum to the agreement incorporating special conditions was executed on 14th June, 1971. That is appended as
part of the agreement. There is yet another contract that was entered into between the parties, i.e., No. 2. CEA/70/71, dated 11th October, 1970.
These two contracts involve (1) quarrying, transporting and dumping of 25-50 lakhs tonnes of core stones ; (2) 13-8 lakhs tonnes of armour
stones ; and (3) 17 lakhs tons of sand. In the contract, the contractor was allotted Thattaparai quarries far quarrying of stones. As regards sand the
contractor was directed to obtain the same from Thamiraparani river bed at Mukkeni. The contract further stipulated payment of royalty of 12
paise per tonne of rock quarried.
As the contractor commenced work at Thattaparai quarry allotted to him, he found it erratic and violently undulating with enormous seepage of
water and with overburden for about 20 feet depth. As it could not yield more than 1,500 tonnes of stones as against the required quantity of
4,000 tonnes a day for both the works, it was not found to be a viable quarry. As it was feared that the failure to obtain necessary stones to
execute the works would result in termination of the contract, he began exploring distant quarries at Vallahad, Alagapur, Swaminathan and
Seethakulam to supplement the out-turn at Thattaparai. As per R. 7 of the Tamil Nadu Minor Minerals Rules, the contractor has to apply to the
Revenue Divisional Officer for previous permission. He sent an application under Ex.P1, dt. 4th November, 1970 (marked before the Arbitrator)
to the District Collector, Tirunelveli, for permission to quarry. It was requested that he might be extended all concessions to which the Government
of India is eligible, under the Tamil Nadu Minor Minerals Concession Rules, 1959, since, according to him, the stones were to be used for the
Tuticorin Harbour Project, which is a Government of India undertaking. As the stones were required for a bona fide public purpose and the
application was being made by a contractor working for a department of the Government of India, he expected that he would be allowed to quarry
free of charge without any seigniorage being levied. The application was recommended and forwarded by the Chief Engineer and Administrator for
getting stones from fresh quarries not stipulated in the contract. The recommendation was specific that the contractor had to make all the payments,
including seigniorage payment to quarry owners, etc. On these terms permission was granted on 30th November, 1970 under Ex.R6, (marked
before the Arbitrator). A meeting of the officials and the contractor took place on 19th August, 1971. It was felt that the Project would be
postponed if the works were to go on only on Thattaparai quarries. Therefore, it was recommended that an extra quantity of 2,500 tonnes per day
be quarried so as to enable the contractor to reach the target of 4,000 tones per day. Accordingly, supplemental agreements were executed
increasing the rates by including extra lead. However, a stipulation was made that the contractor will bear all the payments towards seigniorage
charges, payments to quarry owners and local bodies indemnifying the department from all such payments in this regard. All the other conditions
are to remain the same as in the original agreement.
On the application of the contractor made on 4th November, 1970, for a permit, no orders were passed till 24th September, 1973. However,
the contractor was called upon to execute a lease deed for a period upto 15th June, 1976, wherein he was required to pay seigniorage charges.
Later, the lease was granted for five years from 19th October, 1977, and lease deeds were executed by the contractor. Thereafter, penalties were
levied for stones removed prior to the lease agreement holding it to be illicit quarrying. The penalties were to the tune of Rs. 10,64,777-32 as on
1st January, 1976.
Against these orders, the contractor filed appeals before the Director of Industries. He reduced the penalties for the period prior to the lease. In
some cases he deleted also the seigniorage charges. However, he confirmed the seigniorage levied for a period after the lease. A further appeal
was preferred to the Government of Tamil Nadu. It rejected the appeal holding that it was entirely the responsibility of the contractor to pay
seigniorage fee and the Government were not in any way responsible. It was also held that the appeal was barred by limitation.
It requires to be stated at this stage that even while the appeal was pending before the Collector, a demand was made for arrears of seigniorage
and penalty and the Collector sought to recover them as against the security furnished by the contractor. In his turn, the contractor contended that
he was not liable to pay and therefore, he raised a dispute and sought arbitration as per clause 765 of the contract. The Arbitrator deferred the
enquiry as the appeals filed by the contractor regarding the seigniorage and penalties were then pending with the Government. After the appeal was
dismissed, the contractor sought a reference to arbitration filing a claim statement and the fourth respondent Port Trust, filed its counter. That
matter came up before three Arbitrators. The two issues that were framed are:-
Is the dispute between the contractor and the Port Trust regarding payment of seigniorage , penalties and other charges not arbitrable?
Who is to bear the seigniorage , penalties and other charges levied by the Collector, the contractor or the Port Trust?
On issue No. 1, it was held that a dispute had arisen in regard to who is liable to pay the the seigniorage and penalties that were sought to be
recovered by the Collector, that the dispute bad crystallised and therefore it is arbitrable. On issue No. 2, it was held that the Port Trust had to
bear the liability of Rs. 10,10,152. However, the contractor was to pay Rs. 1,00,300 80 towards royalty. As regards Rs. 54,565, payable to the
Collector towards penalty for removing sand, the contractor was directed to pay the amount to the Collector since this claim was not pressed by
the contractor. This award is dated 6th June, 1980. It is under these circumstances, O.P. 75 of 1980 was filed before the learned Additional
Subordinate Judge of Tuticorin, under S. 14(2) of the Arbitration Act to receive the award passed by the Arbitrators. Along with the same I.A.
193 of 1980 was filed under S. 17 of the Indian Arbitration Act, to pass a decree for a sum of Rs. 10,10,152, with interest thereon at 12 per cent
per annum from the date of award to the date of the decree and future interest from the date of decree till the date of realisation with costs.
The respondent Port Trust in its turn preferred O.P. 107 of 1980 under Ss. 16, 30, 31, and 33 of the Act to set aside the award passed by the
Arbitrators. Both these original petitions came to be dealt with by a common judgment, dt. 28th March, 1981. The learned Additional Subordinate
Judge framed the following three issues for consideration:-
Whether the award, dated 6th June, 1980, has to be received?
Whether the award, dated 6th June, 1980, is erroneous apparent on the face of it and is liable to be set aside?
Whether the Contractor is entitled to a decree for recovery of Rs. 10,10,152 with interest thereon at 12 per cent per annum from the date of the
award to the date of decree and future interest from the date of decree till the date of realisation from the Port Trust?
On these issues he found as follows:--
In view of the foregoing reasons, the award, dated 6th June, 1980, has to be received, that the award, dated 6th June, 1980, made by the
arbitrators is erroneous apparent on the face of it and is liable to be set aside and that the contractor is not entitled to a decree for recovery of Rs.
10,10,152 with interest thereon at 12 percent per annum from the date of the award till the date of decree and future interest from the date of
decree till the date of realisation from the Port Trust. I therefore, find points 1 and 2 in the affirmative and point No. 3 in the negative.
Accordingly he allowed O.P. 75 of 1980 and the award was received. The prayer for a decree for a sum of Rs. 10,10,152 was dismissed. O.P.
107 of 1980 was allowed. In the result, the award was set aside.
Aggrieved by the dismissal of I.A. 193 of 1980, C.R.P. 3920 of 1981 has come to be preferred, while C.M.A. No. 615 of 1981 is against
O.P. 107 of 1980 for setting aside the award. Because of this inter-connection, I stated that these matters can be dealt with under a common
order.
Mr. S. Govind Swaminathan submits first and foremost that the finding of the court below that the matter is not arbitrable is incorrect. Whether
the matter is arbitrable or not, the same cannot be questioned in a suit, because the decision has been rendered by the Arbitrators that the dispute
is arbitrable. Unless that finding is held to constitute an error of law, that cannot be re-argued. In support of this submission, the learned counsel
cites A.M. Mair and Co. Vs. Gordhandass Sagarmull, Reliance is also placed on Union of India (UOI) Vs. A.L. Rallia Ram, . Earlier, the question
whether it was arbitrable was raised before the Arbitrators, but because of the pendency of the appeal before the Government, that was relegated
a waiting the judgment in the appeal before the Government. Therefore, it is not open to the respondents to contend that it is not arbitrable. In any
event, so far as Cl. 28(ii) of the conditions of the contract clearly stipulates the payment of charges which include seigniorage as well, the finding
that it is not arbitrable cannot be supported in law. Cl. 65 of the conditions of contract must be given its wide import and it cannot be restricted so
as to defeat the arbitration clause. As to how such clauses are to be construed can be gathered from B. Mauik Peter v. Union of India and others
1970-3 S.C.C. 689. The general rule is the court cannot sit in appeal over the award, because the parties have chosen to enter into a contract so
as to bypass the normal procedure of filing suits. Unless, therefore, the award manifests an error of law the civil court cannot constitute itself as an
appellate court and decide the issues afresh. It has been so laid down in Chellappa v. Kerala State Electricity Board AIR 1975 S.C. 330 Union of
India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., .
As to what is the meaning of error of law is laid down in Kanpur Nagar Mahapalika v. Narandas Haribansh 1969-2-S.C.C. 620 and Bharat
Heavy Electricals Ltd. v. Amarnath Bhan Prakash 1982-1-S.C.C. 625.
The question here is whether the contractor has to pay the seigniorage fee or because all the stones quarried were used only for the purpose of
Harbour Project, such seigniorage fee is to be paid by the fourth respondent. That is a dispute arising under the conditions as contemplated under
Cl.65 of the contract and therefore, it is arbitrable. Reliance is placed on Smt. Rukmanibai Gupta Vs. Collector Jabalpur and Others, and Firm
Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore,
The further submission of the learned counsel is that the Central Act 67 of 1957, viz., the Mines and Minerals (Regulation and Development)
Act, 1957, deals with the rights in relation to minerals. S. 3(e) talks of ''minor minerals''. The word ''seigniorage'' is nowhere used under this Act. In
exercise of the powers conferred under S. 15 of this Act, the rules are made. The Tamil Nadu Minor Minerals Concession Rules, 1959, have been
made under the said section. R. 3(3) of the Tamil Nadu Minor Minerals Concesion Rules, 1959, mentions about seigniorage. Royalty is similar to
seigniorage. It has been so laid down in Bashir Ahmad and Others Vs. Government of Andhra Pradesh, of the conditions of Contract is referred to
by the learned counsel. When schedule G of the conditions of contract talks of seigniorage fee, it is such a kind that is contemplated under Cl. 4-6.
What exactly is the scope of ''seigniorage'' fee'' and ''royalty'' had come to be laid down in W.A 464 of 1967 of this Court, Trichinopoly Mining
Works v. Collector of Trichirapalli 1971-1-M.L.J. 207 and in W.P. No. 280 of 1974 batch of this Court.
When the main Act does not contemplate levy of seigniorage fee, but only speaks of royalty, any rule framed so as to include something not
contemplated under the Act is ultra vires. Therefore, as laid down in Baijnath v. State of Bihar AIR 1970 S.C. 1486 royalty must be so construed
as to include seigniorage fee. The supplemental agreement emphasises the payment of seigniorage fee by the respondent. The meaning of ''royalty''
has come to be explained in Shanthi Saroop Sharma and Another Vs. State of Punjab and Others, Royalty, whether would amount to tax or fee,
has been discussed in Laddu Mal and Others Vs. The State of Bihar and Others, In In Re: Pakkiriswami Pillai, it has been categorically laid down
that these words ''royalty'' and ''seigniorage'' are interchangeable.
The original agreement has to be read as part and parcel, because Cl. 5 of the supplemental agreement so lays down. In view of Cl. 28(ii) of
the conditions of contract, the liability has to be worked out as per schedule G of the contract. Learned counsel cites The State Electricity Board,
Tamil Nadu Vs. The Sree Meenakshi Mills Ltd., Madurai and Another, Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Private Ltd.,
and Seth Thawardas Pherumal Vs. The Union of India (UOI), . Thus, the argument is concluded stating that if the seigniorage is demanded, as
though it has nothing to do with royalty, such a demand will be ultra vires, not authorised by the Mines and Minerals (Regulation and Development)
Act, 1957.
Mr. R.G. Rajan, learned counsel for the Harbour Project, submits that schedule G of the contract talks of royalty from Government lands. Cl.
35 and 36 of the contract are important for our purpose. Cl. 36(g) of the general conditions of contract speaks of the engineer granting permit for
quarries other than departmental quarries. The other quarries are private quarries. Schedule G applies only to Government quarries for which the
revision petitioner-appellant will have to pay only royalty. Here the quarrying operation was from the private land? When the contractor made an
application on 4th November, 1970 he agreed to pay penalty. That apart, he requested only waiver of royalty charges alone. The reply of the
Engineer, dated 30th November, 1970, makes it clear that seigniorage fee had to be borne by the contractor. S. 9 of the Mines and Minerals
(Regulation and Development) Act, 1957, talks of royalty. S. 15 reserves the right of minor minerals in favour of the State Government. It is in
exercise of this power the Tamil Nadu Minor Minerals Concession Rules, 1959 came to be made. Rr. 3(3) of the Tamil Nadu Minor Minerals
Concession Rules talks of seigniorage fee. R. 17 and 24 are relevant for our purpose. In regard to private quarries, the following payments have to
be made-- (i) Royalty or rent to the owner of the quarry; (ii) Seigniorage fee to the Collector; and (iii) local cess, etc. to the Panchayat. Admittedly
the contractor quarried only in Vellanad quarry, which is a private quarry and there is no scope for applying Schedule G. In the earlier arbitration
proceedings, the point about arbitrability was not raised. S. 2(a) of the Arbitration Act defines an ''arbitration agreement.'' In view of S. 33 of the
said Act, if the dispute falls within the terms of the contract, a fortiori it will not fall under the terms of the arbitration. At all material times the
contractor agreed to pay the seigniorage fee. He gave a specific undertaking to pay the seigniorage fee and also furnish the necessary bond. In so
far as the contractor had clearly undertaken to pay the seigniorage fee, which is also clearly stipulated under the supplemental agreement, there is
no dispute for arbitration and Cl. 65 of the conditions of contract had nothing to do.
The original agreement between the Port Trust and the revision petitioner-appellant is dated 19th August, 1970. But, later the contractor enters
into an agreement undertaking to pay to the Collector the seigniorage fee. Therefore, this is not arbitrable. Even though the objection as to
arbitrability was not taken in the earlier arbitration proceedings, yet, that can be raised now. Reliance is placed on Khardah Company Ltd. Vs.
Raymon and Co. (India) Private Ltd., , to support this argument. In Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Private Ltd., no
specific question was referred to the arbitrator.
Assuming it is arbitrable, in as much as the contractor had contracted out of the original agreement to pay seigniorage fee by a supplemental
agreement, there is nothing for the arbitrators to decide. Seth Thawardas Pherumal Vs. The Union of India (UOI), lays down that an arbitrator is
not a conciliator. Where, therefore, the payment of seigniorage fee falls outside the agreement and constitutes a distinct matter, there was no scope
for arbitration. Alopi Parshad and Sons Ltd. Vs. Union of India (UOI), is a case which is identical to the case on hand. Therefore, to mulct the
Harbour Project with seigniorage fee is not warranted. Jivarajbhai Ujamshi Sheth and Others Vs. Chintamanrao Balaji and Others, is cited in this
behalf. In The State Electricity Board, Tamil Nadu Vs. The Sree Meenakshi Mills Ltd., Madurai and Another, a mixed question of law and fact
was the issue that was dealt with. Therefore, that case has no application to this case.
Having regard to the above arguments, the following questions emerge for decision:--
Whether the levy of seigniorage fee under the Tamil Nadu Minor Minerals Concession Rules, 1959 is valid?
Is it correct to contend that the royalty and seigniorage fee in the instant case are one and the same?
Is the issue relating to payment of seigniorage fee arbitrable?
Who is liable to pay the seigniorage fee?
Question No. 1:--The parties through-out my judgment will be referred to as the Contractor and the Port Trust. The Mines and Minerals
(Regulation and Development) Act, 1957 (Central Act 67 of 1957) is an Act to provide for the regulation of mines and development of minerals
under the control of the Union. In S. 3(e) ''minor minerals'' are defined as:--
''minor minerals'' means building stones, graved ordinary clay, ordinary sand other than sand used for prescribed purposes, and any other mineral
which the Central Government may, by notification in the Official Gazette declare to be a minor mineral.
S. 9 talks of royalties in respect of mining leases. That slates as follows--
(1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease
or in any law in force at such commencement, pay royalty in respect of any (mineral removed or consumed by him or by his agent, manager,
employee, contractor or sub lessee) from the leased area after such commencement at the rate for the title being specified in the second Schedule
in respect of that mineral.
The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any (mineral removed or
consumed by him or by his agent, manager, employee, contractor or sublessee) from the leased area at the rate for the time being specified in the
second schedule in respect of that mineral.
(2-A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development)
Amendment Act, 1972, shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that
such consumption by the workman does not exceed one third of the tonne per month.
(3) The Central Government may, by notification in the official gazette, amend the Second Schedule so as to enhance or reduce the rate at which
royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification:
(Provided that the Central Government shall be enhance the rate or royalty in respect of any mineral more than once during any period of four
years).
S. 14 reads as under:-
The provision of Ss. 4 to 13 (inclusive) shall (sic) apply to (quarry, leases, mining leases or other mineral concessions) in respect of minor minerals.
S. 15 invests power on the State Governments to make rules in respect of minor minerals and states thus:-
The State Government may, by notification in the Official Gazette, make rules for regulating the grant of (quarry, leases, mining leases or other
mineral concessions) in respect of minor minerals and for purposes connected therewith.
(2) Until rules are made under sub-S. (1) any rules made by a State Government regulating the grant of (quarry leases, mining leases or other
mineral concessions) in respect of minor minerals which are in force immediately before the commencement of this Act shall continue in force.
(3) The holder of a mining lease or any other mineral concession granted under any rule made under sub-S.(1) shall pay royalty in respect of minor
minerals removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee at the rate prescribed for the time being in the
rules framed by the State Government in respect of minor minerals;
Provided that the State Government shall not enhance the rate of royalty in respect of any minor mineral for more than once during any period of
four years.
Therefore, by a careful reading of the above sections it will be seen that royalty that is contemplated under S. 9 is only with regard to mining leases
in respect of minerals, other than minor minerals. However, so far as S. 15 (3) stipulates payment of royalty in respect of minor minerals removed
by the lessee, manager, contractor, etc., the liability to pay royalty arises. There is a proviso which clearly debars the State from enhancing the rate
of royalty in respect of the minor minerals more than once during the period of four years. It is only by virtue of the rule making power conferred
under S. 15, the State of Tamil Nadu, has enacted the Tamil Nadu Minor Minerals Concession Rules, 1959. The said rules have been divided into
five sections. S.II deals with Government lands in which the minerals belong to the Government. It is R.3(3) which speaks of levy of seigniorage
fee and penalty. That sub-rule may be extracted in full:--
(3) Seigniorage fee and penalty:--
(a) When quarry is carried on under a permit, seigniorage fee shall be charged at the rates specified in Appendix II to these rules;
(b) When regular leases are granted ordinary assessment on the lands and the seigniorage fee on all minerals extracted or quarried subject to a
minimum of six paise per cart load and a maximum of 12� per cent of the market value of the mineral shall be charged;
(c) For breaches of the rules or the conditions of the lease, enhanced seigniorage fee upto a maximum of fifteen times the normal rate shall be
charged, whenever any person raises without any lawful authority any mineral from any Government land, the State Government may recover the
mineral so raised or when such mineral has already been disposed of, the price thereof from such person apart from the penalty as described
above. The mineral so recovered shall be disposed of by the State Government in the manner they deem fit. If the person who has so raised the
mineral, cannot be determined, the same shall be recovered from such person who is in possession of the mineral so raised or who is proved to
have disposed of the mineral so raised at any stage or period.
(d) In the alternative, the offenders shall be punishable with imprisonment for a term which may extend to six months or fine which may extend to
two thousand rupees or with both. Continuing contravention shall be punishable with an additional fine which may extend to two hundred rupees
for every day during which such contravention continues after conviction for first such contravention;
(e) Whenever any mineral is raised without any lawful authority from any Government land, and for that purpose any tool, equipment, vehicle or
other thing is brought or used by any person, such tool, equipment, vehicle or other thing shall be liable to be seized by the officer authorised by the
Director of Industries and Commerce, or the Collector of the concerned district. The tool, equipment, vehicle, etc., thus seized shall be returnable
to the person to whom they belong only after payment of the fine or penalty and the price of the mineral, etc., or after serving the term of
conviction.
R. 4 deals with quarrying in reserve forests. R. 5 deals with quarrying in reserved land. R. 6 deals with quarrying for domestic or agricultural or
other purposes. R. 7 talks of quarrying for public purposes. R. 8 deals with the procedure of lease of quarries to private persons. R. 9 invests the
power of renewal with the Collector. R. 9-A deals with handing over of leasehold area and eviction of unlawful occupant. The other rules in S.II
are not necessary for our purpose. S.III deals with ryotwari lands and other lands on intermediary tenure in which Government have claim only to a
share of the minerals. R. 17 talks of quarrying by the owner. R. 18 stipulates the rates for seigniorage fee in such cases, which is also specified in
Appendix II to the Rules. R. 19 deals with the procedure for quarrying in ryotwari land. S. IV deals with the land in which the minerals do not
belong to Government. S.V is a miscellaneous section. This is the broad conspectus of the rules.
From the narration of facts leading to the revision and the civil miscellaneous appeal, it has already been a noticed that the contract entered into
between the parties, dated 19th August, 1970 enables the contractor to quarry stones only from Thattaparai. However, as the contractor started
working the quarry allotted to him, he found it erratic and violently undulating with enormous seepage of water and with overburden for about 20
feet depth. Further, the said Thattaparai quarry could not yield more than 1,500 tonnes as against the required quantity of 4,000 tonnes a day.
Thus, when it was found this departmental quarry was not viable he requested permission to quarry at Vallanad, Alagapur, etc., and in the hope of
getting permission he started operating on these private quarries. This is the common case between the parties. Under those circumstances,
undoubtedly it is R. 7 that will apply. That rule contemplates that quarrying could be done subject to-- (1) The previous permission of the Revenue
Divisional Officer being obtained ; and (2) to the general conditions already prescribed by the Collector for two purposes, viz., (i) that the products
removed are required solely for bona fide public purposes, and (ii) not for sale or commercial profits. Permission to quarry is granted only in cases
of department of Government of India, the State Government, Panchayat Union Council, Panchayat or Municipality or their contractors in their
employ. Such a permission is granted if the Engineers concerned certify on their application that the metal is required (1) for bona fide purposes,
and (2) not for sale. The officer certifying must state while granting the certificate--(i) that the metal is required for a public purpose ; and (ii) the
quantity of metal required. In the absence of such a certificate and the permission so granted by the authority concerned, seigniorage fee at the
rates specified in Appendix II to the Rules will be charged. That is clear because R. 7 of the Tamil Nadu Minor Mineral Concession Rules, 1959
states as follows--
Quarrying for public purposes: Quarrying the unreserved waste lands including poromboke other than bunds of drinking water, ponds or tanks
may be allowed free of charge in the case of department of the Government of India and the State Government, Panchayat Union Councils,
Panchayats and Municipalities or contractors in their employ, provided firstly, that the products removed are required and used solely for bona fide
public purpose and not for sale or commercial profits, and secondly, that the quarrying shall be subject to the previous permission of the Revenue
Divisional Officer being obtained and to the general conditions already prescribed by the Collector, Contractors in the employ of Panchayat Union
Councils, Panchayats and Municipalities, shall be given a concession only if the Engineers and Assistant Engineers, or the Commissioners
concerned certify on their application for the concessions that the metal is required for bona fide public purposes and not for sale or commercial
profit. In emergent cases, a certificate issued by a supervisor of the Highways department or a supervisor of Panchayats may be accepted
provisionally but in such cases, a further certificate shall be produced from the Assistant Engineer, the executive authority of the Panchayat
confirming that the supervisor''s certificate as soon as possible, afterwards. In the case of Panchayats, free permits to contractors shall be granted
on the strength of certificates issued by the executive authorities of Panchayats countersigned by the District Panchayat officers. If the Revenue
Divisional Officer considers that in any case, special conditions should be imposed, he shall report the case to the Collector for orders. With the
same restriction, the privilege of free removal may be allowed to other public bodies subject to the further proviso that the operation shall be
conducted under the supervision of their establishment and not by contractors in their employ. The officer concerned, while granting certificate shall
also certify that the metal is required for a public purpose and shall state that purpose, and the quantity of metal required. In all other cases,
seigniorage fee at the rates specified in Appendix II to these rules shall be charged. These provisions shall also apply to the removal of sand from
river beds. The Collector is empowered to close any quarry or reserve it for any particular department of Government or local bodies or prohibit
or regulate quarrying in any way and may require as a condition of quarrying that the land shall afterwards be restored to a state fit for cultivation.
Where a local body desires that the exclusive right of quarrying in any such land should be reserved for it, the land shall be leased to the local body
concerned subject to the payment of ordinary assessment. Such leases which shall be in the Form set out in Appendix III to these rules may be
granted by the Collector unless they infringe the general condition laid down in the Government of India (Finance and Commerce Department),
Resolution No. 933, Extraordinary, dated the 20th February, 1894. The relevant limitations laid down in the said Resolution are as follows:
(1) If the lease is granted for more than five years, it shall be accompanied by an unconditional power of revocation by the Government at any time
during such period or the expiry of six months notice to that effect and it shall not impose on the public revenues an annual liability in excess of Rs.
5,000.
(2) The lease shall not impose on such revenues, a charge or expenditure or liability to damages in excess of one lakh of rupees.
(3) The lease shall not involve the cession of proprietary rights, the estimated value of which exceeds one lakh of rupees.
In all other cases, seigniorage fee at the rates specified in Appendix II to the said Rules shall be charged. Therefore, in the case of private quarries
like Vallanad, Alagapur, etc., three levies are contemplated-(i) royalty under S. 15(3) of the Mines and Minerals (Regulation and Development)
Act, 1957 ; (ii) seigniorage fee under R. 7 of the Tamil Nadu Minor Minerals Concession Rules, 1958 ; and (iii) local cess and surcharge levied by
the local bodies as enabled by the statute (for instance, see Ss. 115 and 116 of the Tamil Nadu Panchayats Act. Accordingly, I answer this
question.
Question No. 2:- ''Royalty'' according to Concise Oxford Dictionary (fifth edn.) means--
Royal right (now especially over minerals) granted by sovereign to individual or corporation (hist) lessee''s payment to land owner for privilege of
working mine; sum paid to patentee for use of patent or to author, etc., for each copy of his book, etc. sold.
''Seigniorage'' according to Concise Oxford Dictionary (fifth edn.) means--
''Seigniorage'' something claimed by sovereign or feudal superior as prerogative, esp. Crown''s right to percentage on bullion brought to mint for
coining.
In Kumara Sri Ramulu Pantulu Vs. The Province of Madras, , meaning of the word ''Royalty'' did not come up for consideration. The meaning of
the word ''rent'' in relation to the right to cut and carry away timber in forest land came up for decision. In paragraphs 6 it was held as follows--
Kuppuswami Ayyar, J: in an unreported case, (S.A. 342 of 1941) analyses carefully the various rights which are common in South India such as
enjoying a casuarina tope by cutting trees, quarrying land, removing earth from tank beds and so on, and points out that the royalty or seigniorage
collected is equivalent to rent. There is ample authority to show that the word ''rent'' is a very wide term not merely relating to payments made by a
tenant to a landlord in the ordinary sense. The learned District Judge has referred to these authorities and he was bound by them. The appellant
retained the land and got benefits from it and therefore, he is liable to pay tax.
I may straightway say that the contention of Mr. S. Govind Swaminathan that the royalty and seigniorage fee are one and the same as seen from
this ruling, is not made out.
Laddu Mal and Others Vs. The State of Bihar and Others, dealt with a question whether royalty was a tax or a fee. It was held to be a tax.
Headnote I reads:-
The word ''royalty'' is used in secondary sense to signify that part of the reddendum which is variable and depends upon the quantity of minerals,
taken out. Royalty is a payment made to the landowner by the lessee of the mine in return for the privilege of working it. It differs from rent. It is a
kind of levy in proportion to the minerals worked. In the present context of things, it is an impost by the Government though its origin was riveted in
the concept of royal prerogative. The royalty on minerals under Bihar Minor Minerals Concession Rules is a compulsory exaction and recoverable
in the event of non payment as arrear of land revenue. All collections made on account of royalty on mines and minerals become part of the
consolidated fund. It is not a payment for services rendered. It is therefore not ''fee''. It is an imposition of a tax or imposed and comes under the
definition given in Art. 36, Cl. 28 of the Constitution.
The more direct authority is Shanthi Saroop Sharma and Another Vs. State of Punjab and Others, At page 84 it was held:-
Royalty is not defined either in the Act or the Rules framed thereunder by the Central Government or the State Government. The meaning of
this word has been considered in some judicial decisions, but they are mostly based on different dictionaries. In Roland Burrow''s Words and
Phrases Judicially Defined, Volume IV, 1944 Edn. at page 605 it is stated:
It is a sound maxim of law, that every word ought, prima facie to be construed in its primary and natural sense, unless a secondary or more limited
sense is required by the subject or the context. In its primary and natural sense ''royalties'' is merely the English translation or equivalent to
''realities'', ''Jura regalia''. Jura regia--The subject was discussed with much fullness of learning in Dyke v. Walford 1848-5 Moo P.C. 434 P.C,
where a Crown grant of jura regalia, belonging to the County Palatine of Lancaster, was held to pass the right to bona vacantia...It stands on the
same footings the right to escheats, to the land between high and low water mark, to felon''s goods to treasure-trove, and other analogous rights''.
With this statement of the law, their Lordships agree and they consider it to have been in substance affirmed by the judgment of Her Majesty In
Council in that case.
In Wharton''s Law Lexicon, 14th Edn. it is stated at page 793--
Royalty, payment to a patentee by agreement on every article made according to his patent ; or to an author by a publisher on every copy of his
book sold, or to the owner of minerals of the right of working the same on every ton or other weight raised.
In Stroud''s Judicial Dictionary of Words and Phrases, 3rd Edn. while dealing with royalties at page 2631, after referring to the Privy Council
decision in Dyke v. Walford 1848-5 Moo P.C. 434 P.C. states:
In its secondary sense the word ''royalties'' signifies in mining leases that part of the reddendum, which is variable, and depends upon the quantity
of minerals gotten (Att. Gen. Ontarie v. Mereer 1883-8 A.C. 767 Supp., see Hereom, Greville Nugent v. Mackenzie 1900 A.C. 83 cited rent,
Listow v. Gibbibs 1858 9 Ir.C.L.R. 223 Sup. or the agreed payment to a patentee on every article made according to the patent.
The meaning given to royalty in Mozley and Whiteley''s Law Dictionary 7th Edn. at page 328 is--
A pro rata payment to a grantor or lessor on the working of the property leased, or otherwise on the profits of the grant or lease. The word is
specially used in reference to mines patents and copyrights.
According to Prem''s Judicial Dictionary Volume IV, 1964 Edn. page 1457--
''Royalty is inter alia, a charge by the owner of minerals from those to whom he gives the concession to remove them, and the charge is on
production, the rate being fixed according to weight : Deeplal and Others Vs. Parshwanath Digambar Jain Vidyalaya Mahamantri Shri
Gulabchand,
After noticing the meaning, given to this word in Wharton''s Law Lexicon and Mozley and Whiteley''s Law Dictionary, Premgoes on to say--
It, therefore, appears that royalties are payments which the Government may demand for the appropriation of minerals, timber or other property
belonging to the Government. Two important features of royalty have to be noticed, they are that the payment made for the privilege of removing
the articles is in proportion to the quantity removed, and the basis of the payment is an agreement. Surajdin v. State AIR 1960 Madh. Pr. 129. If
land is occupied by a person with a right to quarry on payment of royalty such payment being related to the beneficial occupation of the land within
the meaning of the term rent, land cess is payable under Cl. (iii) of S. 74-B. H.R. Rama Rao v. Collector, Chittoor AIR 1957 A.P. 1043; Kumara
Sri Ramulu Pantulu Vs. The Province of Madras, (2); Zamindar of Nuzvid v. Secretary of State 1941 Mad. 414 = 53 L.W. 328.
Reference may now be made to Corpus Juris Secundum, Volume 77. At page 542 of that book, it is stated--
Royalty or Royalties. The word ''royalty is one of varying meanings and in its primary and natural sense, is merely the English translation or
equivalent of ''regalitates'' ''jura regalia'' ''jura regia''. The term originated in England, where it was used to designate the share in production
reserved by the Crown from those to whom the right to work mines and quarries was granted, and the most common use of the term today in this
country is with respect to mining leases, conveyances, and reservations, and in this connection is treated in Mines and Minerals...Defined generally,
the word ''royalty'' means a share of the product or profit reserved by the owner for permitting another to use the property ; the share of the
production or profit paid to the owner, a share of the product or proceeds therefrom reserved to the owner for permitting another to use the
property ; the share of the produce reserved to the owner for permitting another to exploit and use the property ; a share of the profit reserved by
the owner for permitting another to use the property, the amount reserved or the rental to be paid to the original owner of the whole estate.
In the Shorter Oxford English Dictionary, Volume II at page 1761, royalty is stated to mean--''A payment made to the landowner by the lessee of
a mine in return for the privilege of working it. A sum paid to the proprietor of a patented invention for the use of it. A payment made to an author
editor, or composer for each copy of a book, piece of music, etc. sold by the publisher or for the representation of a play.
The subject of royalty has been dealt with exhaustively in Words and Phrases (Permanent edition), Volume 37-A at page 600 where it is
stated as follows: ''A royalty is an interest in real estate entitling the royalty owner to a share in the production of oil, gas, or other minerals
therefrom-- A royalty proper is a share of the product of profits reserved by the owner for permitting another to use or develop his property, and
both in theory and in practice presuppose a lease or production under a lease in order to obtain that profit. Defined as portion reserved to owner
of minerals after another brings the mineral to the surface- The word ''royalty'' as used in contract whereby plaintiff sold mineral interest for a cash
consideration and an undivided interest in profits, if any, to be derived from sale or from royalty received under the lease, would be construed as
referring to the mineral interest itself. The word ''royalty'' as originally conceived was portion of mineral extracted or payment for privilege of
extracting minerals or for use of a mine or of land for that purpose and embodies basic idea of payment for use of mine or of premises with
acquisition of title to severed mineral as incidental. The word ''royalty'' as used in mining and oil operations means a share of produce or profits
paid to owner of land for granted privilege or producing minerals therefrom and excludes the concept of fee simple title to minerals in place. It is
common knowledge that the word ''royalty'' is frequently used to denote an interest in mineral rights (Milton v. Sheed). The words ''bonus'',
''rental'' and ''royalty'' used in connection with oil and gas leases are to be construed in the ordinary and popular sense, ''bonus'' meaning the cash
consideration paid or agreed to be paid for the execution of the lease, ''rental'' being the consideration for the delaying drilling operations and
''royalty'' being share of the product or proceeds therefrom reserved to the owner for permitting another to use the property. The word ''royalty''
originated in England where it was used to designate the share in production reserved by the Crown from those to whom the right to work mines
and quarries was granted. Such is its proper use today in mineral contracts. It is the price paid for the privilege of exercising the right to explore. If
that right is granted by lease contract it is the whole or part of the consideration for the lease. If that right is granted or reserved by a sale, it is the
consideration in part or whole of the sale. Royalty in itself cannot be used to designate the fundamental right which is being dealt with but only to
indicate the percentage, the price, the rent, the consideration attached to or proceeding out of the right or that may proceed from it during its
existence. The royalty depends upon the continued existence of the right to which it is an appendage. It cannot have a lite of its own any more than
could interest exist apart from the note or debt to which it is attached. If a party to a contract sells royalty under an existent lease he is selling a part
or the whole of his rent due from the lease upon which his royalty depends. If he sells royalty under an existing servitude, he is selling a part of the
produce to issue from the use of that servitude and the royalty sale is dependent upon the life and use of the servitude. If a landowner sells royalty
he is selling the proceeds that may issue from his right to explore for minerals on his own land, which is an inherent part of his ownership of the
land. If the landowner sells his land and the right to explore inherent in the land and reserves royalty, he is reserving a share in the anticipated
production to result if and when successful exploration ensues upon the land sold in full ownership.
The legal nature of royalty must be grounded upon the contract in which it appears. If it be used within the understanding of the parties to indicate a
sale or reservation of the right to extract oil and gas, then it is a servitude by whatever name it may be called ; and the established rules connected
with this type of servitude apply. If it is used in a lease contract to indicate a proportionate share of the production going to the landowner or to the
lessor of a servitude or to his lessee, the law of lease and sub-lease will be applied. If the word is used in the contract to indicate a passive interest
in possible production, without the leasing or production privileges usually inherent in the right, then a new and as yet uninterrupted situation
appears, upon which the Court has not declared itself fully.
From all this it is abundantly clear that the word ''royalty'' has a well recognised and defined meaning. As used in Mineral and Oil operations it
means share of produce or profits paid to the owner of the land for granted privilege or producing minerals therefrom and excludes the concept of
fee simple title to minerals in place. In Words and Phrases, Permanent edition, volume 37-A at page 600 royalty as originally conceived was
portion of mineral extracted or payment for privilege of extracting minerals, or for use of a mine or of land for that purpose and embodies basic
idea of payment for use of mine or of premises with acquisition of title to several mineral as incidental.
Under the Tamil Nadu Minor Mineral Concession Rules, the word ''royalty'' is not used anywhere. It is the seigniorage fee that is
contemplated. The payment is to be made at the rates mentioned in Appendix II of the rules. It is the submission of the learned counsel for the
contractor, Mr. Govind Swaminathan that the word ''seigniorage'' is nothing but royalty. Therefore, when schedule G of the contract talks of
seigniorage fee, it is that one which is contemplated under Cl. 4-6 of the conditions of contract.
In W.P. 1864 of 1965 of this Court, the question arose whether cess was payable on royalty and surface rent under S. 115 of the Madras
Panchayats Act. The learned Judge held that the cess could be collected. That was confirmed in W.A.464 of 1967, vide: India Cements Ltd. v.
State of Madras 82 L.W. 81 (S.N.). In that case, the ruling H.R.S. Murthy Vs. Collector of Chittoor and Another, was noted, wherein it was
observed that that royalty normally connoted the payment made for materials or minerals won from the land. If royalty would, therefore, take
within it lessee''s payment to the land owner for the privilege of working mines, that will have nothing to do with seigniorage fee. In this case it has
been seen that though Thattaparai quarry was the one which the department was bound to handover that was found to be unworkable to mine the
required quantity. Concerning that, the agreement is Cls. 35 and 36. Under the former clause, the department is bound to hand over the quarry,
while Cl.36 speaks of a situation where it becomes imperative to get materials from outside private quarries. Such course should be resorted to
only with the specific approval of the Engineer. It was this approval that was sought for by the contractor on 4th November, 1970. Cl. 35 of the
general conditions of contract at page 75 reads:-
The quarry sites that will be handedover by the department are as shown in the site plans attached to the tender documents and they are
located at Thattaparai, Ambasamudram and Kattalamgulam. They will be handedover to the contractor for his use on the works, and the
contractor must satisfy himself what quantities he can expect from the quarries. The contractor shall have to remove all overburden at his cost and
transport it to low lying places in the quarry area as approved by the Engineer. The contractor shall have to spread top soil wherever existing from
the overburden removed and spread it where directed by the Engineer within the quarry area. Quarrying operations shall be confined to the area
specified in the plan on ground with prominent demarcated stones.
Sub-Cl. (g) of Cl. 36 is important for our purpose and that may be extracted :-- To conform to the Acts, rules, etc. the contractor shall arrange
necessary buildings for the creche, stores, medical and periodical examination of works, additional magazine etc, as envisaged in the Acts, Rules
etc. at his own cost. The contractor shall provide his own tools, plants, tackles, screes, explosives and all other articles necessary for the proper
execution of the work and also provide his own watchman to look after the same. He shall also see that the rules framed under the Indian
Explosives Act as well as under the Indian Mines Act with regard to the storage and use of the explosives are strictly adhered to. The Contractor
shall, at his own cost, arrange for first aid attendants, first aid equipment, rest shelters, barricades, danger signals, latrines, etc, as provided for in
the various Acts and Rules.
The work must be carried out in a workman-like and expeditious manner. The quality of stones produced for use on the work shall conform to the
specifications laid down in the specifications. The working shall be to the approval of the Engineer as regards exploitation of the quarry to the best
efficiency so as to avoid wastage of stones in the hill. Any stones which in the opinion of the Engineer do not conform to the specifications will be
rejected by him at any time. If the rejection is done after the stones are brought to the site, the rejected stones shall not be used on the work and
such rejected materials will be cleared to the placed pointed out by the Engineer at the contractor''s cost. Since all stones quarried by the
contractor are the Government''s property, no stone shall be supplied by the contractor to any person other than the Government or allowed to be
taken away to any other works. Discard of quarry face or opening up new faces shall only be on the approval of the Engineer. The quarries shall
have to be worked to levels as approved by the Engineer. All quarry rubbish materials, overburden, etc., removed from the quarry faces, or the,
shall be removed by the contractor away from the quarry faces, as directed by the Engineer so that no portion of the useful quarry gets buried in
them. The Contractor shall, at his own cost, construct temporary or any other installations, loading platform at sidings for loading stones into
wagons or trucks. Such installation shall be constructed only in places approved by the Engineer or his representative.
The contractor shall be permitted to erect at the quarry site his own structures, stones, offices, etc, at places approved by the Engineer. On issue of
the completion certificate to the works, the Contractor shall remove the structure erected by him and restore the site to its original condition. If any
of the structures are required by the Government, the Engineer shall take over on payment of cost fixed by the Engineer.
The contractor shall not use any land in the quarry either for cultivation or for any other purposes except that of breaking and or stacking stones
collected from the quarry.
Sub Cl. (h) states-- (H) The blasting time as specified by the departmental officers should be adhered to. The blasting time shall be between : 6
a.m. and 7 a.m. : 12 noon and 2 p.m. : 5:30 p.m. and 6:30 p.m. All safety rules and regulations regarding the blasting operation such as road
blocks, danger signals, posting guards, giving signals before blasting and all other safety precautions as per the rules should be observed. The
contractor is responsible for all damages to the property or human lives during the quarrying operations. All quarrying operations should be carried
out in an organised and expeditious manner, systematically and with proper planning. The contractor should engage licensed blasters and adopt
electrical blasting on the quarry face which should ensure perfect safety to the men engaged in the quarrying and achieve the outturn required for
completion of the work as per programme. Handblasting may however be done for secondary blasting at floor level, such as breaking of boulders,
etc. In addition to the blaster, the Contractor should have his technical representative to inspect the quarry and arrange quarrying in a systematic
manner. The contractor should carry out the quarrying operations in such a manner that the minimum average daily out turn as indicated below is
maintained:
Programme of work for the major works Armour
Break water Reach Core totalQty. Total quantity
quantity per day quantity per day
* * *
Notwithstanding the above clauses, the Engineer shall have full right to resume or revise the quarry allotted to the contractor at any time without
assigning any reasons therefor.
In this case, the quarry is admittedly a private quarry. Under those circumstances, the question of handing over the site under Cl. 35 does not arise
at all. In such a situation it is impossible to contend that the liability is to pay only royalty and not seigniorage fee. Royalty is paid to the owner of
the quarry while seigniorage is the amount paid as per the Tamil Nadu Minor Mineral Concession Rules, at the rates prescribed under Appendix
II. In addition to this, the local cess, etc., are to be paid. Therefore, as I held above, under the previous question, the liability is to make all the
three payments, viz., (i) royalty to the owner (ii) seigniorage to the Collector, and (iii) local cess, etc., to the local bodies like the Panchayat.
Schedule G of the contract may now be extracted:-
Schedule ''G''
Schedule of rates of royalty recoverable from contractors for removal of stones sand Kankar and other materials from Government lands.
(clause 28 (ii) of General conditions)
S.No. Description Mode of Unit Rate
recovery
of materials charge
Core end armour By weight One
stones
tonne Rs.0-
12/ M.T.
Broken stone By stack One
measurement
tonne Rs. 0-
12/ M.T.
>Rs. 0-12/
M.T.
Note: Seigniorage charges on any material other than prescribed if claimed by the Government will have to be paid by the contractor.
The above stipulates royalty and other materials from the Government lands. The note makes it abundantly clear that the seigniorage charges on
any material other than prescribed will have to be paid separately. Therefore, I conclude under question No. 2, that in the instant case, royalty and
seigniorage fee are not one and the same.
Question No. 3:-The original agreement between the Port Trust and the contractor is dated 19th August, 1970. The two clauses in the
agreement that require to be noted are Cls. 28 and 65. Cl. 28 is important for our purpose. By a reading of this clause it is very clear that except
where otherwise specified, the contractor shall pay tonnage and other royalties. Sub Cl. (i) enables the Government to deduct from the bills
payable to the contractor such royalty charges. That sub-clause refers to Schedule G. It has already been seen that Schedule G applies to royalties
payable from the Government lands.
Cl. 65 of the original contract contains the arbitration clause. That is extracted below--All disputes between the parties arising under these
conditions/or in connection with this contract (except as to any matter the decision of which is specially provided for by these conditions) shall be
referred to the arbitration of three arbitrators, one to be nominated by the Contractor and one by the Government and the third by the two
arbitrators so nominated. The decision of the majority shall be final and binding. The provisions of the Indian Arbitration Act, 1940 and the Rules
made thereunder and any statutory modifications thereof shall be deemed to apply to such reference and deemed to be incorporated in the
contract. The venue of such arbitration shall be any place within India at the discretion of the arbitrators. Work under the contract if reasonably
possible, shall continue during the arbitration proceedings and no payment due to or payable by the Government shall be withheld on account of
such proceedings. Any continuance of the work or any payment after references of the dispute to arbitration will be strictly without prejudice to the
rights and contentions of the parties in arbitration proceedings.
With regard to the supply of materials it has already been noted that Cl. 36 containing S. II of the contract stipulates the manner in which it has
to be done On 15th September, 1970 the contractor writs to the Chief Engineer as follows-
Andhra Civil Construction Company Tuticorin 3
ACC/CE/W-1/70/71
15th Sep. 1970.
To The Chief Engineer and Administrator, Tuticorin Harbour Project, Tuticorin 4
Sir,
Sub : Construction of South Breakwater--Agreement No. I.C.E.A./70-71--Payment of advance-regarding
Referring to the above agreement, we wish to submit that due to the unforeseen delay in removing the over-burden in the Thattaparai quarries, the
production of core stones has not been adequate to maintain the desired rate of progress.
We, therefore, propose to use some other quarries, viz., Valanad to produce the core stones. As the department is aware, the stones of
Vallavanad quarry are of good quality. Even though the lead is more by about 7 miles, we wish to bring the stones from that quarry to maintain the
desired rate of progress. We undertake not to claim any extra rate for the additional lead involved. We shall be grateful if the Chief Engineer is
pleased to allow us, temporarily, to use stones contained from Vellanadu quarries. Thanking you.
Yours faithfully
for Andhra Civil Construction Co.
Another letter is written by him on 20th November, 1970 to the following effect:-
We thank you for your letter cited above. We hereby confirm that all payments in regard to seigniorage charges, etc., and payment to quarry
owners or local bodies will be borne by us and we shall arrange to pay them directly to the concerned authorities. We further hereby indemnify the
department from all payments in this regard in respect of this quarry. We shall, therefore, be grateful if the Chief Engineer and Administrator is
pleased to approve Vallanad quarries and agree not to recover the royalty charges referred to in schedule G for the stones obtained from Valanad
quarries.
To this, the reply of the Chief Engineer, Tuticorin Harbour Project under Ex. A6 dated 30th November, 1970 is as follows-- ""Please refer to your
letter cited above, requesting approval for quarrying and conveying core stones X and Y from Vallanad quarries, for the above work. In the
circumstances explained by you the proposal for quarrying and conveying core stones from Vallanad quarries, temporarily is approved, subject to
the following conditions:
(i) payment for the core stones conveyed from Vallanad quarries shall be made at the rate admissible for core stones from Thattaparai quarry (i.e.,)
item I of agreement, under a supplemental agreement.
(ii) All payments including seigniorage charges, payment to quarry owners or local bodies, etc., in this regard will be borne by the contractor
(underlying is mine)
(iii) The proportionate quantity of core stones (X and Y) will be reduced from the provision against item 1 of the agreement No. 1 C.E.A/70-71.
You are requested to contact the Executive Engineer South Breakwater division for executing the necessary supplemental agreement in this regard.
On 26th April, 1971 in regard to these Vallanadu quarries, the contractor writes a letter to the Chief Engineer, Tuticorin Harbour project, agreeing
to the following conditions:-
In addition to Vallanadu quarries we are developing quarries at Seethahal (which is actually an extension of Vallanadu zone only) Alagapari and
Samynatham. We request you to permit us to quarry and convey core stones from these quarries as follows:
X Stones in tonnes Y stones in tonnes
Vallanad 1,00,000 25,000
Seethaphal 50,000 10,000
Alagapuri 20,000 5,000
Samvnathan 15.000 3,000
In this connection we agree to the following conditions:
Payment for the core stones conveyed from the above mentioned quarries will be made at the rate admissible for core stones from Thattaparai
quarry, i.e., item 1 of agreement, under a supplemental agreement.
All payments including seigniorage charges, payment to quarry owners or local, bodies, etc. in this regard will be borne by us. we hereby
indemnify the department from all such payments in this regard.
The proportionate quantity of core stones (X and Y) will be reduced from the provision against item 1 of the agreement No. 1/CEA/70-71.
We further request you not to recover the royalty charges as per schedule G for the core stones procured the from above mentioned quarries.
On 18th June, 1971, the approval as per Cl. 36 of S.II of the general agreement was granted subject to the conditions mentioned in that letter It
reads:- ""Please refer to your letter cited above, requesting approval for quarrying and conveying core stones (X and Y) from Seethankulam
quarries for the above work. In the circumstances, explained by you, the proposal of quarrying and conveying core stones from Seethakulam
quarries, temporarily till 31st July, 1971, is approved, subject to the following conditions as agreed to by you in your letter first cited:
i. Payment for the core stones conveyed from Seethakulam quarries shall be made at the rate admissible for core stones from Thattaparai quarry,
i.e., item 1 of agreement under a supplemental agreement.
ii. All payments including seigniorage charges, payment to quarry owners or local bodies, etc., in this regard will be borne by you, and subject to
your indemnifying the department from all such payment in this regard.
iii. The proportionate quantity of core stones (X and Y) will be reduced from the provision against item 1 of the agreement No. 26 EA/70-71.
You are specifically informed that no claim for compensation for extra load will be entertained from you. You are requested to contact the
executive Engineer, North Break water division for executing the necessary supplemental agreement in this regard.
Then again on 23rd June, 1971, another letter was whiten by the Chief Engineer to the contractor to the following effect--
Please refer to your letters cited requesting approval to quarry and convey core stores (X and Y) from Seethakulam, Alagapuri, Swaminathan
and Vallanadu quarries for the above work. In the circumstances explained in your letters your proposal of quarrying and conveying core stones
(X and Y) from Seethakulam and Alagapuri quarries is approved, subject to the following conditions, as agreed to in your letter first cited above.
i. Payment for the core stones conveyed from Seethakulam and Alagapuri quarries shall be made at the rates admissible for core stones from
thattaparai quarry ,i.e. item 1 of the agreement under a supplemental agreement.
ii. All payments including seigniorage charges, payment to quarry owners or local bodies etc., in this regard will be borne by you; and subject to
your having indemnified the department from all such payments in this regard.
iii. The proportionate quantity of core stones (X and Y) will be reduced from the provision against item 1 of the agreement No. 1. CEA/70-71.
As regard to Vallanad and Swaminathan quarries, approval has already been accorded by this office and no further approval is necessary.
You are specifically informed that no claim for compensation for extra load will be entertained from you.
You are requested to contact the executive Engineer South Breakwater division for executing the necessary supplemental agreement on this
account.
It was pursuant to this a supplemental agreement was entered into between the contractor and the Collector. The relevant portion of it may be
extracted:-
Original agreement No. CEA/70-71 5th Supplemental agreement
Name of work-construction of North Breakwater from L.S. 1775 in to 4142 in and construction of two pier heads.
Name of contractor : Messrs Andhra Civil Construction Co., 148, Anna Nagar, Madras-40.
S.No. quantity description Rate inAmount
of work figures &
words
Extra rate over item 1 (a) and 1 (b) of the agreement No. 2 C.E.A./70-71 for all the quantities which may have been/will be obtained from
Vallanad quarry, Seethakulam quarry and Alagapuri in addition to the rates admissible under the contract from the commencement of the work Rs.
2-55 (Rs. two and paise fifty-five only per MT)
Special condition:
For the stones collected from private quarries all payments towards seigniorage charges, payment to quarry owners or local bodies shall be
borne by the contractor.
The contractor shall indemnify the department against all payments in regard to private quarries.
All other conditions will remain the same as per the original agreement No 2. C.E.A./70-71.
On 7th February, 1978 the contractor furnished a bond stating that by the end of 31st December, 1975, the Collector has raised a demand of Rs.
10,00,000 towards the payment of seigniorage fees, area assessment, local cess and local cess surcharges against the company. Therefore, the
contractor undertook to pay the Government all the old dues as aforesaid as well as the dues that may accrue in future in respect of the quarrying
done by the company during 1976 and 1977. It was consented by the Collector that the said dues to the Government in respect of quarrying
stones be recovered from the bills. It was further consented that a sum of Rs. 10,00,000 be kept as a deposit with the Tuticorin Harbour Project
authorities. Therefore, where under Ex. P1, dated 4th November, 1970, the contractor applied to the District Collector for permission to quarry
the stones and sought exemption from seigniorage fee for quarrying of stones in the quarry at Kila Vallanadu and Seethakulam on the ground of
bona fide public purposes and the Chief Engineer also recommended such exemption, yet if permission was granted subject to the contractor
paying the seigniorage fees, I am unable to see how the contractor could escape his liability to see how the contractor could escape his liability to
pay the seigniorage fee. As a matter of fact, the above correspondence extracted clearly discloses that the contractor, being fully alive to the
situation, agreed to pay the seigniorage fee and is bound by the contract. The first clause of the supplemental contract entered into between the
contractor and the Collector emphasises the same. No doubt, Cl. 3 states that all other conditions will remain as per the original agreement, viz.,
the one dated 19th August, 1970. I am unable to appreciate the argument of Mr. Govind Swaminathan that because of this Cl. 65 in the contract in
relation to arbitration agreement will come into play.
In this connection, S. 2(a) of the Arbitration Act defines ''arbitration agreement'' as follows--
''arbitration agreement'' means a written agreement to submit present or future difference to arbitration whether an arbitrator is named therein or
not.
S.33 of the Arbitration Act states as follows--
Arbitration agreement or award to be contested by application--Any party to an arbitration agreement or any person claiming under him desiring to
challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the court and the
court shall decide the question on affidavits ;
Provided that where the court deems it just and expedient, it may set down the application for hearing on other evidence also and it may pass such
order for discovery and particulars as it may do in a suit.
From the above it will follow that if the dispute falls into the terms of the contract a fortiori it will not fall into the terms of the arbitration. No doubt
in the earlier proceedings the point of arbitrability was not taken. Nevertheless I am of the view that it may be taken now.
In Khardah Company Ltd. Vs. Raymon and Co. (India) Private Ltd., it has been observed thus :--
But what confers jurisdiction on the arbitrators to hear decide a dispute is an arbitration agreement as defined in S. 2 (a) of the Arbitration Act and
where there is no such agreement, there is an initial want of jurisdiction which cannot be cured by acquiescence.
In Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Private Ltd., in paragraph 17 it has been observed thus:-
It is next contended for the appellants that the question as to the validity of the contracts between the parties was one of the arbitrators to decide
and that in consequence it was not open to the respondents to raise it in an independent application under S. 33 of the Arbitration Act. This
question has been considered by us in Khardah Company Ltd. Vs. Raymon and Co. (India) Private Ltd., with which these appeals were heard
and therein we have held that if a contract is illegal and void, an arbitration clause which is one of the terms thereof, must also perish along with it
and that, a dispute relating to the validity of a contract is in such cases for the court and not for the arbitrators to decide. Following that decision we
must overrule this contention.
In Seth Thawardas Pherumal Vs. The Union of India (UOI), in paragraph 8 it has been held:-
We are clear that the arbitrator went wrong in law. Government departments have their difficulties no less than contractors. There is trouble with
labour, there is the likelihood of machinery breaking down and out of the way places and so forth ; there was also the danger of thunder storms
and heavy showers of rain in the month of May, it will be remembered that the last date of delivery was 25th May, 1946.
--If, with that view, Government expressly stipulated, and the contractor expressly agreed, that Government was not to be liable for any loss
occasioned by a consequence as remote as this, then that is an express term of the contract and the contractor must be tied down to it. If he chose
to contract in absolute terms that was his affair.
--But having contracted he cannot go back on his agreement simply because it does not suit him to abide by it. This is not say that Government is
absolved from all liability, but all it can be held responsible for is for damages occasioned by the breach of its contract to remove pucca bricks
which it had undertaken to remove. But what would such a breach entail?
In the same ruling at page 473 it has been observed--
An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal
selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right
by the courts provided his error appears on the face of the award. The single exception to this is when the parties choose specifically to refer a
question of law as a separate and distinct matters.
Therefore, for the following two reasons, I hold that the matter is not arbitrable firstly, because the dispute falls outside the terms of the
contract under S.33 of the Arbitration Act, secondly, even assuming that the matter is arbitrable, in as much as the contraction had contracted out
of the original agreement to pay seigniorage fee in no unequivocal terms, for which he furnished the bond as well. It stands to reason that he cannot
escape his liability and there is nothing for the Arbitrators to decide. The following case in Alopi Parshad and Sons Ltd. Vs. Union of India (UOI),
is a case on point and the head note (b) reads:
A contract is not frustrated merely because the circumstances in which the contract was made, are altered. The Contract Act does not enable a
party to a contract to ignore the express covenants thereof and to claim payment of consideration for performance of the contract at rates different
from the stipulated rates, on some vague plea of equity.
--The parties to an executory contract are of ten faced, in the course of carrying it (sic) with a turn of events, which they did not (sic) all anticipate-
-a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in
itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, to the light of the circumstances existing
when it was made, shows that they never agreed to be bound in a fundamentally different situation which has unexpectedly emerged, the contract
ceases to bind at that point, not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on
its true construction it does not apply in that situation.
When it is said that in such circumstances, the court reaches a conclusion which is ''just and reasonable'' or ''one which justice demands'', this result
is arrived at by putting a just construction upon the contract in accordance with an implication from the presumed common intention of the parties.
At page 593 it was held:-
(21) S.56 of the Indian Contract Act provides that-
A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible or unlawful performance of the contract had not become impossible or unlawful, the
contract was in fact performed by the agents, and they have received remuneration expressly stipulated to be paid therein. The Indian Contract Act
does not enable a party to contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract
at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of
carrying it out, with a turn of events which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency,
an unexpected obstacle to execution or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration
of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a
fundamentally different situation which has now unexpectedly emerged the contract ceases to bind at the point--not because the court in its
discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation.
When it is said that in such circumstances, the court reaches a conclusion which is ''just and reasonable'' (Lord Wright in Constantine Streamship
Line Ltd v. Imperial Smelting Corporation Ltd. 1942 A.C. 154 at p. 186 or one which ''justice demands'' (Lord Sumner in Hirji Mulji v. Cheong
Yue Steamship Co, Ltd. 1926 A.C. 497 (510) this result is arrived at by putting a just construction upon the contract in accordance with an
''implication... from the presumed common intention of the parties ''(Speech of Lord Simon in British Movietionews Ltd. v. London and District
Cinemas Ltd. 1952 A.C. 166 at p. 185 and 186)
There is no general liberty reserved to the courts to absolve apart from liability to perform his party of the contract, merely because, on
account of an uncontemplated turn of events, the performance of the contract may become onerous. This is the law both in India and in England,
and there is, in our opinion, no general rule to which recourse may be had, as contended by Mr. Chatterjee, relying upon which a party may ignore
the express coven anis on account of an uncontemplated turn of events since the date of the contract. Mr. Chatterjee strenuously contended that in
England, a rule has in recent years been evolved which did not attach to contracts the same sanctity which the earlier decisions had attached, and in
support of his contention, he relied upon the observations made in British Movietone News Ltd v. London and District Cinemas Ltd. 1951-1-K.B.
190 at 201. In that case, Denning, L.J. is reported have observed:-
...no matter that a contract is framed in words which taken literally or absolutely cover what has happened, nevertheless, if the ensuing turn of
events was so completely outside the contemplation of the parties that the court is satisfied that the parties, as reasonable people, cannot have
intended that the contract should apply to the new situation, then the court will read the words of the contract in a qualified sense; it will restrict
them to the circumstances contemplated by the parties; it will not apply them to the uncontemplated turn of events, but will do therein what is just
and reasonable.
But, the observations made by Denning, L.J., upon which reliance has been placed, proceeded substantial upon misapprehension of what was
decided in Parkinson and Co. Ltd. v. Commissioners of Works 1949-2-K.B. 632, on which the learned Lord Justice placed considerable
reliance. The view taken by him was negatived in appeal to the House of Lords in the British Movietone News case 1952 A.C. 126, already
referred to. In India, in the codified law of contracts, there is nothing which justified the view that a change of circumstances, ''completely outside
the contemplation of parties'' at the time when the contract was entered into, will justify a court, while holding the parties bound by the contract, in
departing from the express terms thereof. Parkinson and Co. Ltd. v. Commissioner of Works 1949-2-K.B. 632, was a case in which on the true
interpretation of a contract, it was held, though it was not so expressly provided that the profits of a private contractor, who had entered into a
contract with the Commissioners of Works to make certain building constructions and such other additional constructions as may be demanded by
the latter, were restricted to a fixed amount only if the additional quantity of work did not substantially exceed in value a specified sum. The Court
in that case held that a term must be implied in the contract that the Commissioners should not be entitled to require work materially in excess of
the specified sum. In that case, the court did not proceed upon any such general principle as was assumed by Denning, L.J. in British Movietone
News Ltd. v. London and District Cinemas Ltd. 1954-1 K.B. 190.
--In Jivarajbhai Ujamshi Sheth and Others Vs. Chintamanrao Balaji and Others, , it was held:-
Where in respect of a dispute arising out of a partnership business, the primary duty of the arbitrator under the deed of reference, in which is
incorporated the partnership agreement, is to value the net assets of the firm and to award to the retiring partners a share therein, then in making the
''valuation of the firm'', his jurisdiction is restricted in the manner provided by the partnership agreement. In such a case if the interpretation of the
deed of partnership lies with the arbitration, there is no question of sitting in appeal over his interpretation, but if the parties set limits to action by
the arbitrators, then the arbitrator has to follow the limits set for him and the court can find that he has exceeded his jurisdiction on proof of such
action. The assumption of jurisdiction not possessed by the arbitrator renders the award, to the extent to which it is beyond the arbitrator''s
jurisdiction, invalid. And if it is not possible to sever such invalid part from the other part of the award, the award must fail in its entirety.
These authorities fully support the stand of the Port Trust.
In the award the contractor was relieved of the liability to pay the seigniorage fee on the ground of fairness and equity. If according to Alopi
Parshad and Sons Ltd. Vs. Union of India (UOI), the same is not permissible, the award of the arbitrators is clearly wrong. No doubt, in A.M.
Mair and Co. Vs. Gordhandass Sagarmull, at page 10 it is observed as follows--
It seems to us that this appeal can be disposed of on a short ground We have carefully read the affidavit filed on behalf of the appellants in the
trial court, and we are unable to hold that their case was that they were not parties to the contract or that they had asked the Court to proceed on
the sole ground that they were entitled to enforce the contract by virtue of the custom or usage of the trade. In our opinion, the position which was
taken up by the appellant may be summed up as follows--
They did not accept the allegations made by the respondents that they were not parties to any arbitration agreement with the respondents. (2)
They asked the court to construe the contract and its effect and asserted that they were entitled to enforce it. (3) They also stated that they were
entitled to enforce the contract according to the custom or usage of the trade.
... ... ... ...
If, therefore, we come to the conclusion that both the disputes raised by the respondents fall within the scope of the arbitration clause, then there
is an end of the matter, for, the arbitrators would have jurisdiction to adjudicate on the disputes, and we are not concerned with any error of law or
fact committed by them or any omission on their part to consider any of the matters. In this view, it would not be for us to determine the true
construction of the contract and find out whether the respondents'' contention is correct or not. Once the dispute is found to be within the scope of
the arbitration clause, it is no part of the province of the court to enter into the merits of the dispute.
Again in Union of India (UOI) Vs. A.L. Rallia Ram, the meaning of error of law has been explained thus:
An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties and entrusted with power to decide a dispute
submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. The award of the arbitrator is ordinarily final and
conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and
the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the
decision Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the
manner provided by the arbitration agreement. But it is now firmly established that an award is bad on the ground of error of law on the face of it,
when in the award itself or in a document actually incorporated in it, there is found some legal proposition which is the basis of the award and
which is erroneous. An error in law on the face of the award means ''You can find in the award or a document actually incorporated thereto, as for
instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which
you can then say is erroneous. It does not mean that if in a narrative a ''reference is made to a contention of one party, that opens the door to
setting first what that contention is, and then going to the contract on which the parties'' rights depend to see if that contention is sound''. Lord
Dunedin in AIR 1923 66 (Privy Council) ref. to But this rule does not apply where questions of law are specifically referred to the arbitrator for his
decision, the award of the arbitrator on those questions is binding upon the parties, for, by referring the specific questions the parties desire to have
a decision from the arbitrator on those questions rather than from the court, and the court will not, unless it is satisfied that the arbitrator had
proceeded illegally, interfere with the decision.
In N. Chellappan Vs. Secretary, Kerala State Electricity Board and Another, , it has been held:-
The general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is
good on its face, object to his decision, either upon the law or the facts'' (See Russel on Arbitration, 17th Ed. p.322).
An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a
note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can
then say is erroneous (see AIR 1923 66 (Privy Council) . In Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , this Court adopted the
proposition laid down by the Privy Council and applied it. The court has no jurisdiction to investigate into the merits of the case and to examine the
documentary and oral evidence on the record for the purpose of finding out, whether or not, the arbitrator has committed an error of law.
It is not a question of error of law as contended by Mr. Govind Swaminathan, that requires to be decided here. It is true that only in such cases
the court has power to interfere. But this is not one such question at all, because as I said above the matter is not arbitrable for two valid reasons.
Added to this, the Arbitrators have no jurisdiction to relieve the contractor of the payment of seigniorage fee on the ground of fairness and equity.
This question is answered accordingly.
Question No. 4 : It has already been found that in the case of private quarries the liability of any person who works on the quarry will be--(i)
royalty to the owner ; (ii) seigniorage fee to the Collector ; (iii) local cess and surcharge, etc. S. 15 of the Mines and Minerals (Regulation and
Development) Act (Central Act 67 of 1957) empowers the State Government to frame the necessary Rules in regard to minor minerals. The
royalty that is talked of under S. 9 has nothing to do with seigniorage fee, because that does not apply to minor minerals. I am unable to accept the
contention of the learned counsel for the appellant (contractor) that in so far as royalty alone is talked of under the Central Act 67 of 1957, if a
different attribute by way of seigniorage fee is contemplated under the Tamil Nadu Minor Mineral Concession Rules it will be beyond the scope of
the rule making powers conferred under S. 15 of the Central Act 67 of 1957. This is because the Central Act does not deal with seigniorage fee at
all. S. 14 of the Central Act 67 of 1957 states that Ss. 4 to 13 shall not apply to minor minerals. The seigniorage that is contemplated under the
Tamil Nadu Minor Mineral Concession Rules is in addition to the royalty for which S. 15 of the Central Act gives ample powers for the State
Government to make regulations or rules. Therefore, it is only the contractor who has to pay the seigniorage fee in view of what I have stated
above. I do not think the learned Subordinate Judge has sat on appeal over the award. It is true as laid down in State of Orissa and Another Vs.
Kalinga Construction Co. (P) Ltd., a court cannot sit in appeal over an award. If Cl. 65 of the contract in relation to arbitration stands excluded by
reason of contracting out of the arbitration agreement and more by reason a specific agreement to pay seigniorage fee, it is impossible to contend
that without there being an error of law the court had interfered with the award. For all these reasons, the appeal as well as the revision petition will
stand dismissed However, there will be no order as to costs.