Royalty on Royalty Stands: Miners Lose Their Constitutional Challenge

Court: Supreme Court of India
Bench: Justice J.B. Pardiwala and Justice K.V. Viswanathan
Citation: 2026 INSC 679
Reported: [2026] 8 S.C.R. 104
Case: Writ Petition (Civil) No. 733 of 2025
Decided: 13 July 2026
Outcome: Writ petition dismissed. Impugned Rules held constitutional and intra vires

What the dispute was about

A mining lease holder pays royalty to the State on the minerals it extracts. The rate is applied to the average sale price, a figure worked out from what miners in that State actually sold the mineral for in a given month.

Two further levies sit alongside royalty. The District Mineral Foundation takes a percentage for the benefit of areas affected by mining. The National Mineral Exploration Trust takes a percentage to fund exploration. Both are calculated as a proportion of royalty.

The question was what goes into the sale value used to compute the average sale price. Explanations appended to Rule 38 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 and Rule 45(8)(a) of the Mineral Conservation and Development Rules, 2017 say that royalty, DMF and NMET payments are all included in it.

The practical consequence is compounding. Because this month's royalty forms part of the sale value, it feeds into next month's average sale price, which raises next month's royalty. The petitioners called this royalty on royalty and said it had no statutory basis.

How the challenge was framed

Three grounds were pressed. That the Explanations are ultra vires Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957, which is the source of the power to levy royalty. That they violate Article 14 because the measure of the levy is arbitrary. And that they violate Article 19(1)(g), the right to carry on a trade or business.

A subsidiary point was that the levy breached the three-year cap in the proviso to Section 9(3), which restricts how often the rate of royalty may be revised.

The petitioners also relied on an earlier order of the Supreme Court dated 7 November 2024 in a related writ petition, and on committee reports including those of the Praveen Kumar and Dr. Aruna Sharma committees.

Why the Court upheld the Rules

On the statutory challenge, the Court found no infirmity. The Union had offered a justification for the measure of the levy it adopted, and on the Court's assessment that justification passed constitutional muster. The petitioners had not established unconstitutionality, which was their burden.

On the earlier 2024 order, the Court was direct. That judgment made no pronouncement on the constitutionality of the levy, and a subsequent order of 19 May 2025 had expressly left the petitioners at liberty to challenge the government's decision. So the earlier order could not assist them.

On the committee reports, the Court made a point with reach beyond mining:

Committee Reports are only recommendatory in nature. If it were not, judicial review will be a meaningless exercise.

On the three-year cap, the Court held the argument fallacious. Section 9(3) restricts revision of the rate of royalty. Here there was no revision of the rate at all. What changed was the value to which the unchanged rate is applied, and the proviso does not speak to that.

The holding

The Court held that the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules, insofar as they provide for inclusion of royalty and payments towards DMF and NMET in the sale value for computing the average sale price, are constitutional and valid. They are not violative of Article 14 or Article 19(1)(g), and not ultra vires Section 9 of the MMDR Act. The writ petition was dismissed with no order as to costs.

What it means commercially

The compounding effect stays. Miners should not budget on the assumption that royalty, DMF and NMET will be stripped out of sale value.
The distinction the Court drew, between revising a rate and changing the base a rate applies to, is portable. Expect it to be cited wherever a statutory cap is expressed in terms of rate revision.
The observation on committee reports is useful well outside mining. A recommendation is not a finding, and relying on one to attack a rule is unlikely to succeed on its own.

Who argued it

For the petitioners: Dr. A. M. Singhvi, Balbir Singh and Shyam Divan, Senior Advocates, with Mahesh Agarwal, Ninad Laud, M S Ananth, Avishkar Singhvi and others.

For the Union of India: R. Venkataramani, Attorney General for India, Tushar Mehta, Solicitor General, with Vikramjeet Bannerjee and K. M. Nataraj, Additional Solicitors General, and others.

Frequently asked

Is royalty on royalty legal in Indian mining?

Yes. In Kirloskar Ferrous Industries v. Union of India the Supreme Court upheld the Explanations that include royalty, DMF and NMET payments in the sale value used to compute average sale price, holding them constitutional and not ultra vires Section 9 of the MMDR Act.

What are DMF and NMET?

The District Mineral Foundation, which receives a share for the benefit of areas affected by mining, and the National Mineral Exploration Trust, which funds mineral exploration. Both are computed as a proportion of royalty.

Did the three-year cap on revising royalty rates help the miners?

No. The Court held that the proviso to Section 9(3) restricts revision of the rate of royalty, and here the rate was not revised at all. Only the value to which the rate is applied was affected.

Can committee reports be used to challenge a rule?

Only to a limited extent. The Court observed that committee reports are recommendatory in nature, and that treating them otherwise would render judicial review meaningless.

What is the citation?

Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India and Anr., 2026 INSC 679, reported at [2026] 8 S.C.R. 104, decided on 13 July 2026.

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