The making of a legal minefield

Prohibition in transfer of non-auctioned mining lease has left industry worried and government confused

In what is being construed as a big blow to the commodities sector, the government has clarified that the transfer of mining leases granted according to the old mining law will not be allowed. Companies, lawyers and retired government officials say if the government doesn't amend the law, firms in the sector are likely to move court.

In March this year, the government passed an amendment to the Mines and Minerals (Development and Regulation) Act, 1957, to provide transparency and momentum to the sector. The amendment, the MMDRA 2015, introduced a provision that clearly stated the transfer of mineral concessions would be allowed only for the mines granted through auctions. That meant the transfer of any non-auctioned lease was prohibited. This has wide implications for both industry and the government.

As none of the non-coal mineral leases in India has been allotted through auction, the transfer of any mining lease won't be possible, according to law. Only in MMDRA 2015 has the government introduced such a policy of auctioning mineral leases.

The two major deals hit by this provision are Lafarge-Birla Corp and Ultratech-Jaypee Cements, for which the transfer of limestone mining leases now seems improbable. Lafarge's case is unique in that the Competition Commission of India has asked it to divest two mining assets to another company (in this case, Birla Corp) so that it can successfully merge with Holcim.

The government has acknowledged that this is a setback for industry. In a recent interaction with an industry chamber, Union mines secretary Balvinder Kumar said the government "will have to explore other areas to resolve this issue". Senior ministry officials have indicated the government is unlikely to amend MMDRA 2015.

Experts tracking the issue say amending the law is the best option. "An amendment to the law will be the safest route. Any executive circular or notification could be challenged in court," said a senior lawyer involved with mining companies. Experts say an executive circular can't change the meaning of what Parliament has passed, that only auctioned leases can be transferred.

"With this provision of law, you can't carry out even general restructuring. If you want to do a de-merger of an entity, you can't. For instance, you can't merge your steel company with your cement undertaking, as your mining leases won't be transferred," said a senior lawyer.

The solution might well lie in the 2011 version of the MMDRA Bill. The Bill stated companies only needed an approval from the state government to transfer mining lease ownership. More, the Bill stated if a state government thought the consideration between the transferer and the transferee wasn't adequate, it could invite competitive financial bids within a month of filing of the application for a transfer. "In the best mining countries, reconnaissance and prospecting licences are easily transferable, to encourage venture capital investment. Unless exploration is made easy, minerals will not be discovered. In the case of mining leases, too, easy transferability allows companies with advanced technologies to acquire mines and bring in better mineral extraction capabilities. Most important, it allows metal-making companies to set up plants based on latest energy- or mineral-efficient technologies without having to worry about being able to access mineral resources," said S Vijay Kumar, former Union mines secretary.

If the government doesn't amend the Act, the affected companies will be forced to move court. "It will not be easy for the court to override the will of Parliament and strike down this provision. In the case of Lafarge, the court might direct the anti-trust regulator to review its decision or direct the government to find a solution," said a Delhi-based expert.

This comes at a time when the government is busy preparing for mineral auctions, expected to start in two months.