NEW DELHI | Jan 25, 2016: The Supreme Court has held that the Rajasthan government will take back possession of a mine from Gotan Limestone Khanji Udyog Pvt Ltd (GLKUPL), which was transferred to cement major Ultra Tech, saying that competent authority was "misled" by concealing the real transaction.

The apex court set aside the order of the Rajasthan High Court which had dismissed the state government's plea to restore to it the possession of a mine, located in 10 sq km area near Gotan town in Nagaur district, the lease of which was transferred in contravention of rules to Ultra Tech Cement Ltd (UTCL), also known as Ultra Tech.

It also directed the Rajasthan government to frame and notify its policy with regard to transfer of mining lease within one month and said, "Till such a decision is taken, status quo may be maintained."

Holding that the Rajasthan government rightly exercised its power to cancel the lease transferred in violation of rules, a bench of Justices A R Dave and A K Goel said, "In the present case, it was not a case of mere transfer of shareholding or change of Directors or even a routine merger, but use of device to unauthorisedly acquire mining lease by misleading the competent authority by concealing the real transaction.

"Real transaction is of impermissible sale of the lease which was the only asset of the company. If true facts that lease was to be sold were disclosed, power to permit transfer of lease may not have been exercised. Lease could not be transferred to make profit. Thus, the doctrine of lifting the corporate veil should be invoked," the bench said.

"The public power of permitting transfer of lease could not be used to benefit a private operator, who sells its rights in natural resources given to it by the State, in violation of law," the bench said.

The state's Mines Department on December 16, 2014 had cancelled the mining lease granted in favour of GLKUPL, which was set aside by the single judge bench of the high court on March 25, 2015.

The Rajasthan government's appeal against the single judge order was also dismissed on May 14, 2015, by a division bench which said there was no contravention of the 1986 rules in the transfer of the lease of the mine in question.

The bench noted the contention of the state government that Ultra Tech cement has purchased the mine from GLKUPL, the shareholders of which were four brothers, who were booked by Anti-Corruption Bureau in August 2014 for the lease transfer.

Further, along with the state government, rival cement major J K Cements Ltd had also contended that the high court had failed to take note of the fact that Gotan Limestone had not even "come into existence when it asked for or made an application seeking transfer of the lease".

It was contended that the same by no stretch of imagination can be termed as legal as at relevant time Gotan Pvt Ltd was not a legal entity and hence had no existence in the eyes of law.

Noting that minerals vest in the State and it has to exercise its power as per doctrine of public trust, the apex court said, "In the present case, this principle (of corporate veil') clearly applies as transfer of shares to cover up real transaction which is sale of mining lease for consideration without the previous consent of competent authority, as statutorily required.

"The statutory requirement is sought to be overcome with the plea that it was a transaction merely of transfer of shareholding when on the face of it the transaction is clearly that of sale of the mining lease. In view of the above, the view taken by the high court cannot be sustained," it said.

The bench said, "It was clear that formation of GLKUPL itself was a device for transfer of mining lease from GLKUPL to UTCL for monetary consideration without disclosing the real transaction to the competent authority."

It said a lessee privately and unauthorisedly cannot sell its rights for consideration and profiteer from rights which belong to State.

"Once it is held that transfer of lease is not permissible without permission of the competent authority, the competent authority was entitled to have full disclosure of facts for taking a decision in the matter so that a private person does not benefit at the expense of public property.

"The original lessee did not disclose that the real purpose was not merely to change its partnership business into a private limited company as claimed but to privately transfer the lease by sale to a third party. This aspect has also escaped the attention of the high court," the bench said.

The court held that sale of shareholding by GLKUPL to Ultra Tech was a private "unauthorized" sale of mining lease which being in violation of rules is "void".

"GLKUPL has been formed merely as a device to avoid the legal requirement for transfer of mining lease and to facilitate private benefit to the parties to the transaction, to the detriment of the public," the bench said.

(Source: http://economictimes.indiatimes.com/)