Looking Back on Article 3 During Changing Regulations in the Mining Sector

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After the extension of the Jammu & Kashmir Reorganization Act, 2019 which abrogated Article 370 of the Constitution of India, a lot of speculations were made on the fate of J&K, whereas the current regime at Center saw the extension of Central acts to the newly created UT of J&K as an overture of development and anticipated high interstate investments in J&K. But many had an alternate theory and speculated that not much would change as the non-local investor would be sceptical to invest in J&K for its volatile situation and pendency of abrogation issue before the Hon’ble Supreme Court of India in WP (C) 1099 of 2019, as any adverse decision on the fate of Reorganization Act could cost investors loss of millions.

But what’s changing? The data as to investment reflects that abrogation has proved to be very beneficial for the state exchequer as far as money receipts from E-auction of mining are concerned. Over the last few months majority of the mining, leases have gone to non-local firms, which are majorly based out of Punjab, Uttar Pradesh, and Rajasthan and have made competitive bids. The abrogation has unbolted the mining industry of the Jammu and Kashmir to non-locals, which has a vast repository of Limestone, Gypsum, Bauxite, Magnesite, Dolomite, Quartzite, Borax, Fuel Minerals like Coal, Lignite, decorative/building stones like Granite, Marble, Slate, Bauxite, China clay, Bentonite and Gemstone like Sapphire, Garnet, Tourmaline, etc.

The current regime at the Center has been a consistent promoter for investment in J&K and also claims to be working towards “ease of business” by removing restrictions that inhibited the growth and development of the state, these steps have been taken largely to boost non-local investor confidence. The e-auction of Sand mining blocks saw a surge in the bids, as the blocks which were earlier allocated for approximately 8 lacs are now being bid for 17 lacs. This surge in bids has doubled the State exchequer earnings, which is expected to bring development in the state, as a financially strong hand would implement state policies smooth. Also, these investments would create new employment opportunities and a morale boost for investors of other industries as well. What’s to be noted is that non-locals investors have not only participated in auctions for safe belts of J&K but in almost every district, which signifies symmetrical distribution and development of J&K. In Baramulla, the State fetched around 21 crores in revenue and whereas 5 crores in Srinagar.

There are two sides to a coin; The surge in Auction receipts is no doubt a profitable affair for the State, but the local old guards of mines have been made to take a back seat as their financials don’t allow them to complete with the non-local investors; in the recent allocations locals were a rare sight as the majority of the allocations were secured by non-local investors. This created a stir and political parties started demanding for Domicile Reservation in the Mining sector just like 100% reservation in jobs. A similar demand was also made by KCCI (Kashmir Chamber of Commerce and Industry) whose main concern was

“Use of financial muscle power has wiped locals out in Srinagar and reports from other districts are equally discouraging. The auction bid for 15 blocks in Pulwama has jumped from the previous Rs 2 Crores to a whopping Rs 17.82 Crores. There is no way that the local contractors can compete and thus disadvantaged,” Instead of money flowing into the local economy there is all likelihood of a reverse outflow. The introduction of heavy machinery in the extraction process would leave the local sand diggers jobless and the environmental costs are also worrying.”

With regional political parties and KCCI making demands for altering the J&K mining policy and creating Domicile Reservation in Mining, the big question, which arises, is “Can there be domicile reservation in Mining? And would such reservation not create proxy ownership of local miners on Mining Land? 

As far as the legal aspect is concerned it would be important to understand that post abrogation Jammu and Kashmir stands at the same pedestal as any other UT of Union of India, Hence attracting application of the Constitution of India in its strict form. Therefore on analyzing The Mine and Mineral Regulation Act, 1957 (MMRDA) under which The Jammu & Kashmir Minor Minerals Concession, Storage, Transportation of Minerals and Prevention of Illegal Mining Rules-2016 have been framed, along with the constitutional provisions raises the following questions

1.Can State or Center under the Mines and Mineral Act make reservations?

  1. Will Domicile reservation creates proxy ownership of locals on mining land?

Do Mines and Minerals Act give power to the Center or State to make any Reservations?

The Mines and Minerals Act under chapter V and specifically under section 17A rests power with State to make reservations but further reading of the section makes it abundantly clear that the limit to such reservation extends only for Preservation purposes; Hence making it clear that the state can only reserve the area for its preservation by prohibiting mining and state cannot under the said provision restrict the participation in the auction by domicile holders only. Further Section 17A (2) also extend power to the state to make the reservation of mining area but confines such powers to the extent of making reservation only for Sate run mining companies and corporations and not to the extent of reserving such areas for locals. The power of the state under this section was upheld by the Hon’ble Supreme Court in Geomysore Services (I) Pvt. Ltd.v. Hutti Goldmines Co. Ltd., 2018 SCC OnLine SC 503:wherein it was held that  “The State Government being the owner of the land and minerals, has a right to propose to the Central Government to reserve lands not held under a prospecting license or mining lease for exploitation by the State Government companies or undertakings but approval of the Central Government is necessary.”

As far as the Central Government’s power to make the reservation under the MMRDA Act 1957 is concerned the relevance of Section 10 (B) 6 of the MMRDA Amendment Act 2015 brings a ray of hope. The proviso, which reads as “Provided that the terms and conditions may include the reservation of any particular mine or mines for a particular end-use and subject to such condition which allows only such eligible end-users to participate in the auction”. The bare reading of the said proviso allows the Central Government to alter the terms and conditions and makes reservation of Mines.

But can the centre be expected to do so? Where on one hand centre has allowed 100% Foreign Direct Investment (FDI) in Commercial Coal Mining by automatic route opening the market for international mining companies to extract coal from Indian blocks, can domicile reservation be expected in Mining in Jammu and Kashmir; Even if such reservation is made the same would again become a subject matter of judicial scrutiny.

Will Domicile reservation create proxy ownership on mining land? 

Every Reservation puts Constitutional principles at stake, which aims at the elimination of disparity, and domicile reservation in J&K would certainly set a precedent, which other states would want to follow. Restricting the mines to domicile holders would further create an imbalance and disparities amongst the state revenues and a monopolistic market with domination over prices and supplies can be expected too, also what can be foreseen is states independently entering into a proprietary relationship in the international market defeating the purpose of the Quasi Federal Structure.

If such reservation policies are allowed, the same can create a Proxy Ownership of Domicile holders over the state-owned mining lands, which would be completely arbitrary and contrary to Constitutional Provisions. The first right of locals does extend on the local resources but not the extent of commercial exploitation and Local miners cannot be given the privilege and special enrichment, as it would be violative of Article 14 of the Constitution which guarantees “Right to equality before the Law”; and Article 19(1)(g) which provides that all citizens shall have the right to practice any profession or to carry on any occupation, trade or business.

Protection of Locals

Where earlier a sand truck in Kashmir was sold for around 2500-2700 INR the same is now being sold for around 4500 INR and the allotment of blocks to non-local auctioneers has also put under threat employment of a local worker who used to mine with traditional methods instead of heavy machinery. These consequent issues need attention as an erosion of special status and abrogation of Article 370 has been portrayed by the current regime as the sword to take down asymmetric constitutionalism and promotion of equal rights. Hence eradicating disparities should be the sine qua non as a welfare State, and insights from the local stakeholders shall be used to identify the consequent problem and both State and Center shall shoulder in sculpting a policy according to the needs of Jammu and Kashmir.

The authors, Viqas Malik and Romaan Muneeb, are Lawyers at the Jammu & Kasmir High Court \, and Partners at “Malik and Romaan Law offices, Srinagar”. The Authors can be reached at [email protected].

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