Govt. Tries to find a Way Around the Atomic Energy Act

In two previous posts in this blog, here and here, we discussed the exclusivity provided by the Atomic Energy Act, 1962 to the Central Government and Central Government Companies to harness atomic energy in India. In the Budget Speech for the FY 2024-25, the finance minister announced that the Union Government would partner with the private sector for establishing Bharat Small Reactors (BSR), which are basically SMRs or Small Modular Reactors. The relevant portion of the budget speech reads as under:

“75. Nuclear energy is expected to form a very significant part of the energy mix for Viksit Bharat. Towards that pursuit, our government will partner with the private sector for (1) setting up Bharat Small Reactors, (2) research & development of Bharat Small Modular Reactor, and (3) research & development of newer technologies for nuclear energy. The R&D funding announced in the interim budget will be made available for this sector.” (emphasis added).

This announcement comes in the wake of Section 14(1) of the Atomic Energy Act which prohibits a direct role by the private sector in the Indian atomic energy industry.

The Government seems to have worked a way out for allowing private participation: the nuclear plant will be operated by the Nuclear Power Corporation of India (NPCIL) but the funding and the land will be provided by private players. It remains to be seen whether the private players will have a share of the revenue. These plants, it has been suggested, could replace or substitute captive power plants. A news item about this development can be accessed from here. 

Supreme Court Dismisses Challenge to Atomic Energy Act

The Supreme Court of India has dealt with an important matter of contemporary relevance: atomic energy in India. This post addresses the recent decision of the Supreme Court in Sandeep TS v. Union of India, Writ Petition(s)(Civil) No(s).564/2024: Order dt. 17.09.2024: SCI. 

A writ petition was filed early this year by one Mr. Sandeep TS, a physicist and an Indian citizen residing in the USA. The writ petition was filed under Article 32 of the Constitution of India raising a grievance against the Atomic Energy Act, 1962 (“Atomic Energy Act”) as it allegedly restricted, unduly, the involvement of private parties in licensing for nuclear energy.

The matter came up before a three judge Bench consisting of the Hon’ble Mr. Chief Justice DY Chandrachud, Hon'ble Mr. Justice J.B. Pardiwala, and Hon'ble Mr. Justice Manoj Misra. The three judge Bench referred to the Long Title of the Atomic Energy Act and Section 14 thereof.

The Long Title to the Atomic Energy Act reads: “An Act to provide for the development, control and use of atomic energy for the welfare of the people of India and for other peaceful purposes and for matters connected therewith.”

Section 2(1)(g) defines the term “prescribed substance” as “any substance including any mineral which the Central Government may, by notification, prescribe, being a substance which in its opinion is or may be used for the production or use of atomic energy or research into matters connected therewith and includes uranium, plutonium, thorium, beryllium, deuterium or any of their respective derivatives or compounds or any other materials containing any of the aforesaid substances;”

Section 14 of the said Act provided for the following:

• Central Government may make rules relating to control over production and use of atomic energy.
• Central Government may prohibit except under a licence activities prescribed in Section 14(1), including the acquisition, production, possession, use, disposal, export or import of a prescribed substance, etc.
• A licence for the acquisition, production, possession, use, disposal, export or import of any plant designed or adopted or manufactured for the production, development and use of atomic energy or for research into matters connected therewith can only be given to a Department of the Central Government or any authority or an institution or a corporation established by the Central Government, or a Government company.
• A licence granted to a Government company under Section 14(1) would stand cancelled when such company ceases to be a Government company.
• The extent of rule making power of the Central Government under this provision.

So, when the petitioner challenged the Atomic Energy Act as unduly restrictive, the Supreme Court rejected the challenge on the following grounds:

• The Parliament has introduced the Atomic Energy Act for a calibrated exploitation of atomic energy and subjected it to strict safeguards considering the adverse effects of misuse or accident.
• Hence, this Act cannot be considered as arbitrary or as interfering with the Petitioner’s fundamental rights.

Accordingly, the three Judge Bench of the Supreme Court dismissed the petition filed under Article 32 of the Constitution. 

Followers of this blog may recollect a post titled "Small Modular Nuclear reactors in India: Liberalisation of Regime & Way Forward last year where we highlighted the same issue. The Supreme Court in this case rightly dismissed the petition since this is a matter for the Legislature to take a call.

Section 29A Arbitration Act & Time Limit for Filing Application

Section 29A(1) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in its relevant portion states: 

"(1)The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23..."

If the award is not made within this period or an extension period (of up to six months) agreed between the parties, the mandate of the arbitrator "shall terminate". The exception to this termination is where prior to or after expiry of that period, the Court extends such period. This extension is to be granted by the court on an application made by a party and for sufficient cause. Once the application for extension is filed, the mandate of the arbitrator is to continue till disposal of the application.  

In Rohan Builders v Berger Paints, 2024 INSC 686 (Rohan Builders), the question decided the important question of whether an application for extension of time u/s 29A could be filed after the expiry of the period specified in S. 29A(1) (i.e., 12 months from completion of pleadings).

The court had to construe Section 29A(4), which, in its relevant part provides:

"(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period..."

Taking note of this provision, the court held that it could be deduced from this "unambiguous language" that the Court could extend the time "where an application is filed after the expiry of the period". (Para 7). Note this the provision quoted does not explicitly talk about the application being filed after the expiry- it only deals with the power of the court to extend the period after its expiry.

The court also noted that if either party took no action, "the arbitration proceedings are terminated". (Para 10). However, this does not mean that if no application is filed within 12 months or the extended six months period (u/s 29A(3)), the mandate of the arbitrator would terminate or that the arbitrator would become de jure incapable of performing her function. Construing the effect of "terminate" in 29A(4), the Supreme Court held:

"The word “terminate” in the contextual form does not reflect termination as if the proceedings have come to a legal and final end, and cannot continue even on filing of an application for extension of time." (Para 12).

Hence, the termination contemplated in S. 29A(4) is not an "absolute" termination (Para 12). The court reasoned that if a rigid construction of the provision was made, that would amount to legislating a limitation period judicially, which was not "conspicuously" stated by the provision. (Para 13). The court also noted that "the expression and intent of the provision are to the contrary." (Para 13).

The court also gave an ex post facto justification for its construction: if a rigid construction was given to the provision, it would mean more frequent applications and interventions by courts, and worse, re-commencing the arbitration once again, which would only impede arbitration (para 14).

The court stated that this construction would not encourage rogue litigants who would be bent on making the time limit for award inconsequential since the court could, on sufficient cause alone, extend the time limit, and can also impose time limits. The SC was also conscious that in the process of application u/s 29A, the court could substitute the arbitrators, thereby eliminating the need for going through another round of appointment process or S. 11 proceedings. 

Interestingly, the court also made it clear that the arbitral tribunal could not pass the award till an application u/s 29A(5) is filed before the court. Even if the award is passed, the court could invoke its powers u/s 29A. The court held:

"Therefore, the arbitral tribunal may not pronounce the award till an application under Section 29A(5)of the A & C Act is sub-judice before the court. In a given case, where an award is pronounced during the pendency of an application for extension of period of the arbitral tribunal, the court must still decide the application under sub-section (5), and may even, where an award has been pronounced, invoke, when required and justified, sub-sections (6) to (8), or the first and third proviso to Section 29A(4) of the A & C Act." (Para 17)

In conclusion, the court answered the question before it in the following manner: 

"... an application for extension of the time period for passing an arbitral award under Section 29A(4) read with Section 29A(5) is maintainable even after the expiry of the twelve-month or the extended six-month period, as the case may be. The court while adjudicating such extension applications will be guided by the principle of sufficient cause and our observations in paragraph 15 of the judgment." (Para 19).

Nine Judge Bench of SCI in Mineral Area Development Authority v SAIL, 2024 INSC 554: Summary

One of the most important matters in the recent times has been decided by a nine-judge bench of the Hon’ble Supreme Court in Mineral Area Development Authority v. SAIL, 2024 INSC 554. It deals with the important issue of the distribution of legislative powers between the Union and the States as regards taxation of mineral rights. It also decided on the nature of royalty insofar as it is applicable to minerals.

The issue of royalty came into play in the context of its classification. It royalty is classified as a tax, prior decisions have held that State legislatures lacked competence to levy taxes on mineral rights as they were dealt with under Entry 54, List I, VII Schedule, where Union had the exclusive competence. Some decisions held that royalty was not tax and therefore the State legislatures were competent to make laws further to Entry 49, List II, VII Schedule, where States had the exclusive competence. This conflict is the subject of decision of the nine judge Bench of the Supreme Court.

Initially, about 11 questions were recorded by a three judge Bench as having to be determined. During the hearing before the nine judge Bench, there was consensus between the counsels for the Petitioners and the Respondents as to the questions that were to be determined by the nine judge-Bench. Union of India filed an affidavit stating that Entry 53, List I, Schedule VII which related to mineral oils/ petroleum/ oil fields, was not covered in the issues before the court. So, the Supreme Court did not discuss these aspects in the decision. The questions to be determined reduced from 11 to merely five. Of the nine judges, Justice Ms. Nagaratna dissented. The majority view was penned by Chief Justice Mr. Chandrachud.

The court’s ultimate determination vis-à-vis these questions as contained in Para 342 of the Majority judgment is provided below:

Question a. What is the true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax;

Finding:

“a. Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears;”

b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is the ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I? Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II?

c. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in Entry 50 of List II pro tanto subjects the entry to Entry 54 of List I, which is a non-taxing general entry?  Consequently, is there any departure from the general scheme of distribution of legislative powers as enunciated in M P V Sundararamier (supra)?

Determination: “b. Entry 50 of List II does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). The legislative power to tax mineral rights vests with the State legislatures. Parliament does not have legislative competence to tax mineral rights under Entry 54 of List I, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament cannot use its residuary powers with respect to that subject-matter;”

c. Entry 50 of List II envisages that Parliament can impose “any limitations” on the legislative field created by that entry under a law relating to mineral development. The MMDR Act as it stands has not imposed any limitations as envisaged in Entry 50 of List II;

d. The scope of the expression “any limitations” under Entry 50 of List II is wide enough to include the imposition of restrictions, conditions, principles, as well as a prohibition;

d. What is the scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land? Would the constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I?

e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II?”

Determination: “f. The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II. The decision in Goodricke (supra) is clarified to this extent;

g. Entries 49 and 50 of List II deal with distinct subject matters and operate in ifferent fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II;

h. The “limitations” imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II do not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect;”

Prior Decisions: “i. The decisions in India Cement (supra), Orissa Cement (supra), Federation of Mining Associations of Rajasthan (supra), Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), Mahanadi Coalfields (supra), and P Kannadasan (supra) are overruled to the extent of the observations made in the present case.”

The minority judgment of Justice Ms. BV Nagarathna held that royalty was in the nature of a tax, that Sections 9, 9A and 25 of the Mines and Minerals (Development and Regulation) Act, 1957 denuded/ limited the scope of Entry 50, List II and that taxes on lands and buildings contemplated taxes directly levied on the land as a unit and did not include mineral bearing lands within its scope. The minority judgment recognized that Entry 50, List II was the only entry in Lists I and II which subjected the taxing power of the States to limitations imposed by the Parliament by law relating to mineral development.

The Supreme Court Observer (SCO) has an excellent page on the decision, providing links to the hearing transcripts and prior decisions. Link to SCO page on the case is here. Happy reading!