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By Shruti Sahu and Arnav Joshi
The Central Government has prepared a comprehensive draft Mines and Minerals (Development and Regulation) Bill, 2011 (the Bill). Once passed, the Bill will repeal and replace the Mines and Minerals (Development and Regulation) Act, 1957 (the Act). After several rounds of consultations with stakeholders including central ministries, state governments, industry associations and NGOs, the Bill was approved by the Cabinet in September 2011. However, this was approved only after the Bill was further scrutinized by a group of ministers headed by the Finance Minister Pranab Mukherjee (set up to address inter-ministerial differences). The Bill was then introduced in the Lok Sabha in December 2011 and is now awaiting the approval of the parliamentary committee. Once approved, the Bill is expected to be passed in the monsoon session of Parliament. The Bill has been hotly debated, and some of the issues have been resolved through consultation, while others remain unresolved.
Highlights of key changes
The Bill envisages a comprehensive overhaul of the current mining regime in the country. It introduces provisions aimed at addressing compensation to stakeholders, especially families impacted by mining operations, sustainable mining and local area development. The Bill introduces a competitive bidding and auction process, which aims to ensure transparency, equity and elimination of discretion by local authorities. It seeks to implement effective redressal and regulatory mechanisms along with incentives for encouraging good mining practices, and is also expected to lead to technology absorption and judicious exploitation of deep seated minerals.
New compensation mechanisms
The Bill provides for a general increase in the amounts payable as royalty or dead rent (as the case may be) to the central or state government, and for major minerals this amount may be increased from time to time by the central government after taking into account the recommendations of the National Mining Regulatory Authority.
The Bill also requires mining concession-holders to pay compensation to persons with occupation, usufruct or traditional rights over the land. Reconnaissance or prospecting licensees are required to pay compensation that is determined by the state government, if not mutually agreed between the parties. Mining lease holders will be required to contribute 26 percent of their annual profit from mining-related operations for coal and lignite, and one year’s royalty for other major minerals to the district mineral foundation, pro rata to actual production. For minor minerals, an amount specified by the state government will be made payable by lease holders. These amounts are payable in addition to any compensation or other amount payable to project affected persons.
Additionally, where a company is the holder of a mining lease, it will have to allot at least one non-transferable share at par to each member of a family affected by mining-related operations, in addition to providing employment or other assistance in accordance with the state rehabilitation and resettlement policy.
On termination of a lease or licence, the lessee or licensee, as the case may be, will also be required to compensate the land holder for any damage caused to the mined land. The amount of compensation will be determined by the state government, if not mutually agreed between the parties.
If a lessee or licensee fails to pay any of the amounts specified above, the state government will have the following rights: forfeiture of the security deposit, recovery of amounts as arrears, revocation of the lease and declaration of lessee/licensee as ineligible for award of mineral concessions under the Bill.
Further, the Bill also empowers the central government to by notification, levy and collect a cess on major minerals, either in the nature of a customs duty or an excise duty, a provision that is absent in the current Act.
Ministry of Corporate Affairs (MoCA) Recommendations
In addition to the overall opposition to increased compensation payable, the issue of allotting non-transferable shares to project affected families has faced stiff resistance from the mining industry and was also opposed by the MoCA. The MoCA has made certain recommendations, pending the approval of the parliamentary committee with respect to the non-transferability of shares. The MoCA has suggested that the shares should be made transferable so that the affected family may freely sell or transfer their shares and be benefitted out of such a sale. It also noted that the Companies Act, 1956 permits free transfer of shares subject to a lock-in restriction on the promoters of a public listed company, while in case of private companies the transfer can be completed only after board approval. The MoCA also suggested a lock-in period of 3-4 years, instead of making the shares non-transferable. The parliamentary panel however did not accept the MoCA’s recommendations, stating that the non-transferability of the shares would prevent unscrupulous elements from buying those shares for a slight premium.
Additionally, the MoCA has suggested that apart from citizens of India, companies under the Companies Act, 1956 or a registered firm under the Partnership Act, limited liability partnerships should also be considered eligible for the grant of mineral concessions. This suggestion is still under consideration by the panel.
An interactive session with stakeholders undertaken by the Federation of Indian Mineral Industries in November 2011 threw up several industry concerns. Mining companies involved in the consultation process are apprehensive of the impact that the mechanism for profit sharing and compensation to be given to project affected families will have on the mining industry, stating that the Bill places extra administrative burden on and makes the tax burden on mining companies excessive.
There is also the issue of overlapping legislation such as the new Companies Bill, which proposes a mandatory provision of 2% of the net profit of companies on CSR activities (a similar requirement exists in the Bill, as a part of the mining plan required to be submitted). There are also concerns over the National Land Acquisition and Rehabilitation and Resettlement Bill, 2011, currently being debated in parliament, which also deals with compensating project affected persons.
Aligning the Bill with other legislations remains a key unresolved issue while the Bill remains under consideration in parliament.
Although stakeholder issues have been addressed to some extent, the mining industry’s recommendations in relation to profit sharing, compensation regimes and taxation burdens remain un-addressed. The government has taken a hard stance on these issues in order to benefit project affected persons, especially in light of the impact of past illegal mining.
Shruti Sahu (pictured left) is a Counsel and Arnav Joshi (pictured right) is an Associate with Trilegal.
Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. The firm has over 120 lawyers, some of whom have experience with law firms in the US, the UK and Japan.