The Supreme Court has set aside a recommendation by the Karnataka government ? later endorsed by the central government ? to allow mining of iron and manganese ores by JSW Steel and Kalyani Steels at 380 hectares of land in Sandur, which falls in Karnataka’s Bellary district.

A bench headed by justice P Sathasivam held that the state government had no authority to recommend grant of mining lease to the two firms on the grounds of their having invested in the state in industries using these ores. The SC, therefore, quashed a December, 2004 recommendation of the state government which was subsequently endorsed by the Centre.

The judgment can potentially curb the tendency among state governments to use investment in downstream industries in their respective states as the sole criterion for granting mining leases.

The court asked the Karnataka government to consider all applications afresh in the light of its interpretation of the relevant provisions of the Mineral Concession (MC) Rules and make a fresh recommendation to the central government within a period of four months.

The state government had relied on Rule 35 of Mineral Concession Rules to justify the recommendation in favour of JSW Steel and Kalyani on the premise that it is intended to give preference to those who have made existing investments in industries based on iron ore, it noted.

The court further said that ?no such recommendation on the basis of investments and promises could be made in favour of any party interested in mining… The state government had no authority under the Mines & Minerals (Development and Regulation) Act, 1957, to make commitment to any person that it will, in future, grant a mining lease in the event that the person makes investment in any project.?

Rejecting the request for remitting the matter to the central government for reconsideration of its decision, the Bench said that ?if the recommendation of the state government cannot be upheld in law, all consequential orders including the subsequent approval by the central government are also liable to be quashed. If the very same recommendation of the state government is sent back to the central government ? without setting aside the impugned judgment, it is more likely that the central government would simply follow its previous order.?

The state government had, in March 2003, notified availability of a large area for re-grant of mining lease which was referred to as the ?Held Area Notification?.

Subsequently, MSPL, Kalyani and 88 other applicants had filed applications grant of mining lease over the notified area. However, JSW Steel did not apply pursuant to the Notification, even though some of its sister concerns applied. The state government made a recommendation to the central government for approval of the proposed grant of mining lease to JSW Steel and Kalyani.

Various writ petitions were filed against the recommendations dated December 6, 2004 in the Karnataka High Court.

During the pendency of the writ petitions, the central government gave its approval for grant of mining lease in favour of JSW Steel and Kalyani. While the single judge quashed the grant on the ground that JSW?s application prior to the ?Held Area Notification? could not have been entertained, the division bench in June last year reversed the judgment.

Senior counsel FS Nariman and KK Venugopal, appearing for Sandur and MSPL, respectively, contended that the state government was pre-determined to grant the lease in favour of JSW Steel and Kalyani. They also contended that there is no clear reason as to why JSW Steel and Kalyani alone were given preference and the applications of MSPL, Sandur and others were not considered favourably.