The 2021 amendments to the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) have introduced some significant changes to the process of grant of mineral tenements. The recent amendments confer power on the Central Government to take over the process of grant of mineral concession under certain circumstances. Exercise of this newly introduced power may increase tension between the Centre and rich mineral bearing States. While increase in mineral exploitation may push economic growth it may be accompanied with increase in friction between the Centre and the State Governments.

Under the constitutional framework, Parliament by law can declare the extent of control to be exercised by the Central Government while regulating mines and mineral development. The power to legislate is also extended to State Governments. However, the power exercised by the States is subject to the control declared by the Parliament and conferred on the Central Government.

The extent of control was declared in 1957 by the Parliament in the Mines and Minerals (Regulation and Development) Act, 1957 (MMRD). Immediately after independence, India adopted an economic growth model which was largely socialist. This model required certain industries of basic and strategic importance to be in the public sector. Development of sectors including iron and steel, coal and lignite, gold, diamond was vested exclusively with the Centre and State governments. The socialist model saw mineral exploration of minerals including coal, iron ore and other base metals like copper and zinc being driven by Public Sector Undertakings.

The MMRD Act outlined Central Government control on the mineral sector in India. This included Central Government approval for mining of certain minerals. The MMRD Act categorized minerals as major minerals and minor minerals. While State governments were given the power to regulate mining of minor minerals including sand, mining and prospecting of major minerals including iron ore, coal, bauxite etc. could be done only with approval from the Central Government. Mining of major minerals was strictly scrutinized by the Central Government. In 1986 the MMRD Act was amended conferring power on the Central Government to reserve areas for exploitation by PSUs. Minerals requiring prior Central Government approval for exploitation were also increased from 27 to 38.

In 1999, nomenclature of the legislation was changed from Mines and Minerals (Regulation and Development) Act to Mines and Minerals (Development and Regulation) Act (MMDR). After the wave of liberalization in 1991, India moved towards a policy encouraging private investment. In 2006, 100% Foreign Direct Investment was allowed for exploration and mining of diamonds and other precious stones.

In 2015, the MMDR Act was amended significantly introducing new methods of allocation and grant of mineral concessions in India. The old system of First Come First Serve was replaced with an auction system. Under the earlier regime, State governments received applications for grant of mineral concessions and notified areas available for grant.

Applications received simultaneously were considered by the State governments keeping in mind factors like special knowledge or experience, financial resources, knowledge of technical staff and proposed investments. State governments exercised discretion keeping in mind the above parameters to decide an application. However, with the introduction of the auction method, subjective parameters were replaced with objective parameters.

Exercise of discretion by State governments while deciding mineral concession applications was reduced. The shift to auction method brought more transparency in the decision making process. The 2015 amendment also did away with the requirement of seeking prior Central Government approval for grant of mineral concessions. Central Government reduced its control giving greater freedom to State governments to grant mineral concessions.

From 1991 to 2015, mineral sector witnessed a trend where the Central Government sought to reduce its control in the mineral sector giving more room for the States to operate. The 2021 amendments seem to have arrested and to an extent reversed the trend of loosening of Central Government control. The 2021 amendments give power to the Central Government to notify areas for grant of mining lease (where mineral existence has been established) in the event State Government fail to notify the same despite directions by the Central Government. Central Government has further been given the power to give directions to the State governments to conduct and complete auction of minerals in notified areas within a period fixed in consultation with the States. In the event, State governments fail to complete the auction process, Central Government may conduct auction for grant of mining lease. Such power conferred on the Central Government to conduct auctions takes away from the State governments, being owner of minerals, the freedom to conduct auctions. Though this power is to be exercised only after the State Government fails to conduct auctions, the amendment reflects that the Central Government wants to have a more hands on approach. The 2021 amendment further confer power on the Central Government to give directions regarding composition and utilization of funds by District Mineral Foundation, a fund created from proceeds from mineral exploitation for the benefit of the local affected population.

The 2021 amendments have been introduced amongst others to fully harness the potential of the mineral sector, increase employment and investment, increase production and pace of exploration and auction of mineral resources. State governments have complained that the Central Government has been using its powers to the disdain of States and the power under the constitutional framework is disproportionately tilted in favour of the Centre.

In 2020, State of Jharkhand dragged the Central Government to the Supreme Court of India challenging its decision to auction coal blocks in the State of Jharkhand. State of Jharkhand countered this decision alleging the decision was taken unilaterally without consulting the State. Jharkhand is apprehensive about the effect of mining on its environment and indigenous tribal population. However, this is not the first time a State government has dragged the Central Government to the Supreme Court alleging infringement of its power to govern minerals in the State.

In 1961, State of West Bengal filed a suit against the Central Government challenging the power of the Parliament to enact the Coal Bearing Areas (Acquisition and Development) Act, 1957. This Act allowed the Central Government to acquire any land or any right in over land in any part of India. In exercise of the said powers Central Government expressed its intent to prospect coal lying within West Bengal. West Bengal resisted this move of the Central Government contending sovereignty over its territory. The suit filed by West Bengal was dismissed by a bench of six judges of the Supreme Court holding that the Parliament had the power to enact such laws. After traversing Constitutional provisions, Supreme Court held that powers of the Central Government have been enlarged to achieve economic unity as it was felt that there should be centralized control and administration in certain fields if rapid economic and industrial progress had to be achieved by the nation. The case filed by Jharkhand is perhaps an indication of things to come. If the Central Government takes upon itself the process of grant of mineral concessions, friction between the State and Centre will only increase.

Supreme Court of India has reiterated on several occasions that the ownership of minerals belong to the States. However, States do not have the full power to exercise the right of ownership over minerals. This right to ownership is curtailed and at times dictated by the power exercised by the Central Government under the MMDR Act. In 1988 Sarkaria Commission on Centre-State relations while submitting its recommendation on the working of the arrangement between the Centre and the State said that “exploitation of mineral resources will continue to increase. There is general agreement that minerals are national resources and they should be exploited and developed for the benefit of the country as a whole. Only Union legislation can ensure such regulation and development of minerals.”

While the Central Government may be the best party to monitor mineral development for the benefit of the country, exercise of power to allocate minerals in the absence of consultation with State governments and without taking State governments in confidence may lead to more confrontation between the Centre and the State.

Written by Febin Mathew Varghese, Dua Associates