Holding

The lease cannot be assigned to the SPV as it would substitute the earlier lease, and the CEC's price‑fixation mechanism is not applicable at the pre‑operational stage; the rehabilitation package is accepted and forest diversion clearance is granted.

Summary

The Supreme Court considered an interlocutory application filed by Sterlite Industries (Siil) seeking clarification on the rehabilitation package and the proposed transfer of the Niyamgiri bauxite mining lease to a Special Purpose Vehicle (SPV) as suggested by the Central Empowered Committee (CEC). The Court held that the State could not be directed to assign the existing lease to the SPV because such a transfer would amount to a substitution of the lease originally granted to Odisha Mining Corporation Ltd (OMCL) under a joint venture agreement approved by the Ministry of Mines. It further ruled that the price‑fixation mechanism proposed by the CEC should not be applied at the pre‑operational stage, though the CEC may invoke it later if profits are found to be depressed. The Court accepted the rehabilitation package, including annual contributions, wildlife management, tribal development, and other environmental safeguards, and consequently granted clearance for the diversion of 660.749 hectares of forest land for mining, subject to the Ministry of Environment and Forests' approval. The interlocutory application was therefore disposed of, with the forest diversion clearance affirmed.

Issues considered

Whether the State of Orissa may be directed to assign the existing mining lease to a newly formed SPV, thereby substituting the original lease with OMCL.
Whether the price‑fixation mechanism suggested by the CEC can be applied at the pre‑operational stage of the mining project.
Whether the rehabilitation package and associated conditions satisfy the requirements for granting forest diversion clearance under environmental law.

Legislation cited

Subjects

Sustainable developmentEnvironmental clearanceForest diversionRehabilitation packageSpecial Purpose VehicleLease assignmentPrice mechanismBauxite miningNiyamgiriTribal developmentWildlife management

Judgment

[2008] 11 S.C.R. 1091

T.N. GODAVARAMAN
... THIRUMULPAD A
v.
UNION OF INDIA AND ORS.
(I.A. No. 2134 of 2007)
AUGUST 8, 2008
B
[K.G. BALAKRISHNAN, CJI, DR. ARIJIT PASAYAT AND
S.H. KAPADIA, JJ]

·Environmental Law:
Sustainable Development - Balancing of development- C
needs with protection of environment and ecology - Parties
unconditionally accepting the suggestions made in the order
dated 23.11.2007* for Rehabilitation Package and modalities
to sub-serve the purpose of Sustainable Development - Sug-
gestion by CEC for transfer of mining lease from OMCL to D
SPV - HELD: The lease cannot be directed to be assigned
by State Government to SPV as it would amount to substitu-
tion of lease earlier executed by State Government in favour
of OMCL - At pre-operational stage, price mechanism sug- ·
gested by CEC need not be applied - If at the end of Account- E
ing Year of SllL, CEC finds that annual profits before tax and
interest is depressed by pricing mechanism mentioned in joint
venture agreement dated 5. 10. 04, then it would be open to
.CEC to move the Court with suggested price mechanism in
its Report - In fact in the Order dated 23.11.07 it has been F
- > directed that the accounts of SPV would be audited by Auditor
General after they are prepared by statutory auditors of OMCL
- It would be open even to the statutory auditors of OMCL as
well as CEC to inform the Court at the end of the Accounting
Year whether annual profit before tax and interest stands de- G
pressed for any reason and at that stage certainly the price
mechanism suggested by CEC in its Report will be consid-
ered - The Rehabilitation Package, suggested in the Order
23. 11.2007 is accepted and clearance is granted to the forest
1091 H
. '
1092 SUPREME COURT REPORTS [2008] 11 S.C.R.

A diversion.proposal for diversion of 660. 749 hectares of forest
land to undertake bauxite mining in the area in question -
Next step would be for MoEF to grant its approval in accor-
dance with law.
*TN. Godavaraman Thirumulpad Vs. Union of India and
B )( ...
Ors. (2007) 12 SCR 447=[2008]2 SCC 222 - referred to.
Case Law Reference
(2007) 12 SCR 447=[2008]2 SCC 222 - referred to [para 1]

c CIVIL ORIGINAL JURISDICTION: IA NO. 2134of2007
IN
Writ Petition (Civil) No. 202 of 1995
(Under Article 32 of the constitution of India)
D
G.E. Vahanvati, S.G. Harish N. Salve (A.C.), Uday U. Lalit ~
"(
(A.C.), K.K. Venugopal, Dr. Rajeev Dhavan, T.R. Andhyarujina,
Dr. A.M. Slnghvi, Ranjit Kumar, Siddhartha Chowdhary (A.C.)
A.D.N. Rao (A.C.) P.K. Manohar, Harris Beeran, P. Parmeswaran,
Anuradha Dutt, Vijaylakshmi Menon, Ekta Kapil, Ankur Talwar,
E
Raj Kumar Mehta, Mragank, Malini Pal, Premjit Elangbam, J.K.
Das, Avijeet Bhujabai, Ajit Pudussery, K.V. Mohan, Anand K.
Ganesan, Swapna Sheshadri, Manoj Saxena (for T.V. George),
Dhruv Mehta, Harshvardhan Jha and Yashraj Singh Deora (for
M/s. K.L. Mehta & Co.) for the Appearing Parties.
F
k -
The following Order of the Court was delivered
This Interlocutory Application preferred by M/s. Sterlite In-
dustries (India) Ltd. [Siil] is a sequel to our Order dated 23.11.07
in I.A. Nos.1324 and 1474 in Writ Petition (C) No.202of1995
G etc. in the case of TN. Godavaraman Thirumulpad v. Union of
India & others And in the matter of : Vedanta Alumina Ltd.
reported in (2008) 2 sec 222. We need not repeat the con- ~ .
tents of our Order dated 23.11.07 except to state that in our
Order we suggested a Rehabilitation Package and modalities
H to subserve the principle of Sustainable Development.
T.N. GODAVARAMAN THIRUMULPAD v. UNION OF 1093
INDIAAND ORS.
' t
2. For the sake of convenience we quote herein below the A
suggestions made in our earlier order dated 23.11.07 which
read as under:
"(i) State of Orissa shall float a Special Purpose Vehicle
(SPV) for scheduled area development of lanjigarh
Project in which the stake-holders shall be State of B
Orissa, OMC Ltd. and Mis. Siil. Such SPV shall be
incorporated under the Companies Act, 1956. The
Accounts of SPV will be prepared by the statutory
auditors of OMC Ltd. and they shall be audited by
the Auditor General for State of Orissa every year. C
Mis. SllL will deposit, every year commencing from
1. 4. 07, 5% of its annual profits before tax and
interest from Lanjigarh Project or Rs. 10 crores
whichever is higher for Scheduled Area
Development with the said SPV and it shall be the D
. .... y
duty of the said SPV to account for the expenses
each year. The annual report of SPV shall be
__.'
submitted to CEC every year. If CEC finds non-
utilisation or mis-utilisation of funds the same shall
be brought to the notice of this Court. While E
calculating annual profits before tax and interest Ml
s. Sill shall do so on the basis of the market value of
the material which is sold by OMC Ltd. to Mis. Siil
or its nominee.
(ii) In addition to what is stated above, Mis. Siil shall F
pay NPV of Rs.55 crores and Rs.50.53 crores
towards Wildlife Management Plan for Conservation
and Management of Wildlife around lanjigarh bauxite
mine ·and Rs.12.20 crores towards tribal
development. In addition, Mis. Siil shall also bear G
expenses towards compensatory afforestation.
(iii) A statement shall be filed by Mis. Siil with CEC within
eight weeks from today stating number of persons
who shall be absorbed on permanent basis in Mis. H
1094 SUPREME COURT REPORTS [2008] 11 S.C.R.

A Siil including land-losers. They shall give categories
in which they would be permanently absorbed. The
list would also show particulars of persons who would
be employed by the contractors of M/s. Siil and the
period for which they would be employed.
B (iv) The State Government has the following suggestions
on this issue:-
1. The user agency shall undertake demarcation
of the lease area on the ground using four feet
c high cement concrete pillars with serial number,
forward and back bearings and distance from
pillar to pillar.
2. The user agency shall make arrangements for
mutation and transfer of equivalent non-forest
D land identified for compensatory afforestation to
the ownership of the State Forest Department.
3. The State Forest Department will take up
compensatory afforestation at project cost with
l
suitable indigenous species and will declare the \
E said area identified for compensatory
afforstation as "protected forest' under the Orissa
Forest Act 1972 forthe purpose of management.
4. The user agency shall undertake Rehabilitation
F of Project affected families, if any as per the Orissa
Rehabilitation and Resettlement Policy 2006.
5. The user agency shall undertake Phased
reclamation of mined out area. All overburden ·
should be used for back filling and reclamation
G of the mined out areas.
6. The user agency shall undertake fencing of the
safety zone area and endeavour for protection
as well as regeneration of the said area. It shall
deposit funds with the State Forest Deptt. for
H
I

t-
TN. GODAVARAMAN THIRUMULPAD v. UNION OF 1095
INDIAAND ORS.
' t
the protection and regeneration of the safety A
zone area.
7. Adequate soil conservation measures shall be .
undertaken by the Lessee on the overburden
dumps to prevent contamination of steam flow.
B
8. The user agency should undertake comprehensive
study on hydrogeology of the area and the
impact of mining on the surrounding water
quality and stream flow at regular interval and
take effective measures so as to maintain the
' pre mining water condition as far as possible. C
9. The user agency should undertake a
comprehensive study of the wild life available
in the area in association with institutes of
repute like Wild Life Institute of India, Dehradun,
0
Forest Research Institute, Dehradun etc. and
shall prepare a site specific comprehensive
Wild Life Management plan for conservation
and management of the wild life in the project
impact area under the guidance of the Chief
Wild Life Warden of the State. E
10. The user agency shall deposit the NPV of the
forest land sought for diversion for undertaking
mining operations.
\ 11 . The user agency shall prepare a comprehensive F
plan for the development of tribals in the project
impact area taking into consideration their
requirements for health, education, communication,
recreation, livelihood and cultural lifestyle.
12. As per the policy of the State Government, the G
user agency shall earmark 5% of the net profit
accrued in the project to be spent for the
development of health, education, communication,
irrigation and agricul~ure of the said schedule
area withiri a radius of 50 Kms. H
1096 SUPREME COURT REPORTS [2008] 11 S.C.R. ·

~ r

A 13. Controlled Blasting may be used only in
exigencies wherever needed to minimize the
impact of noise on wild life of the area.
14. The User Agency shall undertake development
of greenery by way of plantation of suitable
B indigenous species in all vacant areas within x •
the project.
15. Trees shall be felled from the diverted area
only when it is necessary with the strict
c supervision of the State Forest Deptt. at the
cost of the project.
. 16. The forest land diverted shall be non transferable.
Whenever the forest land is not required, the
same shall be surrendered to the State Forest
r
D
~
Deptt. under intimation to Ministry of Environment
and Forests, Government of India."
'{ .... ,.
(emphasis supplied by us)
I-
3. By our Order dated 23.11.07 we made it clear that if ~
E Sill is agreeable to the suggested Rehabilitation Package they
were at liberty to move this Court by way of interlocutory appli-
cation. Consequently, the present I.A. No.2134 of 2007 has been
preferred by Siil.
4. In the present I.A. Sill, State of Orissa and Orissa Min-
F ing Corporation Ltd. [OMCl] have unconditionally accepted the
terms and conditions and modalities suggested by this Court ~- ~
under the caption "Rehabilitation Package" in its Order dated
23.11.07. However, CEC has filed its Report dated 24.4.08.
The Report contains response/counter suggestions on certain
G aspects. In our Order dated 23.11.07 we inter alia suggested
formation of SPV for Scheduled Area Development of lanjigarh
Project in which we suggested that the stake-holders shall be
State of Orissa, OMCl and Sill. We also inter alia suggested > ~-
that the said SPV shall be incorporated under the Companies
H Act, 1956.
TN. GODAVARAMAN THIRUMULPAD v. UNION OF 1097
INDIA AND ORS.
,. r
5. CEC in its response has suggested that SPV should A
work the Niyamgiri Bauxite Mine in a business-like manner and
that the mining lease of Niyamgiri Bauxite Mine may be assigned
to the SPV from OMCL. In other words, CEC wants that State
of Orissa should participate in the mining operations and it has
further suggested that the State of Orissa should transfer or as- B
, .>(
sign the mining lease from OMCl to SPV
6. There are serious problems in the above suggestion
made by CEC. At the outset, it needs to be stated that under
our Order dated 23.11.07 we suggested, as a part of Rehabili-
tation Package, formation of SPV for Scheduled Area Devel- c
opment of lanjigarh Project. We wanted the State of Orissa to
be associated with SPV in order to ensure implementation of
proper schemes for the development of the tribal area and in
our Order it has not been suggested for incorporation of SPV
to take over the mines which have been leased out by State of D
Orissa to OMCl (lessee). The reason is obvious. We cannot
_# ~
change leases/MoUs/joint venture agreements signed between
the parties at earlier point of time which have been approved
by the Ministry of Mines, Government of India, and other Au-
thorities. The object for passing the Order dated 23.11.07 was E
to strike a balance between development and environmental
protection. The lanjigarh Tehsil in District Kalahandi, as stated
in our Order dated 23.11.07, faces abject poverty. At the same
time the area is eco-sensitive area. We have tried to strike a
balance in order to subserve the principle of Sustainable De- F
,,,_..-;- velopment. Under our Order we suggested Rehabilitation Pack-
age under which apart from NPV, Siil is also required to de-
posit 5% of annual profits before tax and interest from lanjigarh
Project or Rs.10 crores per annum whichever is higher. The
said Project covers both mining and refining. The amount is
G
required to be deposited by Siil with SPVevery year commenc-
ing from 1.4.07. This condition has been accepted by Siil.
~ />, Moreover, by reasons of acceptance of suggested Rehabilita-
tion Package, 2090 persons (including displaced persons)
.• would get employment as indicated in the Charts annexed to
H
1098 SUPREME COURT REPORTS [2008] 11 S.C.R.

'"'·
A the Report of CEC. In addition, 2400 more persons would earn
income by support services. However, we cannot change the
existing structure in its entirety. If we were to accept the said
counter suggestion of CEC, namely, that the mines be taken
over by SPV then we would be violating the terms and condi-
B tions of the joint venture Agreement dated 5.10.04 between x ~
OMCL and VAL (now substituted by Siil). Moreover, it may be
noted that the joint venture Agreement dated 5.10.04 was ex-
ecuted because the Government of Orissa wanted its Under-
taking, namely, OMCL to earn revenue on its own account. There-
c fore, we cannot direct a complete changeover. Under the joint
venture Agreement, OMCL was a lessee from Government of
Orissa. We cannot modify that lease. We cannot direct the lease
to be assigned by Government of Orissa to SPV as it would
amount to substitution of lease earlier executed by Government
of Orissa in favour of OMCL.
D
7. CEC has further suggested pre-determined mechanism '{ ...
for price fixation. Under the suggested new price-fixation mecha-
nism CEC has suggested as follows:
"The price of the Bauxite Ore in the market is not ascertainable
E since there is no market for this ore as such of significance, but
its price can be ascertained by reducing the normative cost of
conversion plus profit from the market price of Aluminium. The
CEC also examined the feasibility of determining the price of
the Ore by reducing the cost of conversion (plus profit) from
F the price of Alumina, but did not consider this an advisable
option since the price of Alumina shows a great degree of -t ...
variation from supplier to supplier ( ... ). This method of
calculating price is in effect a mirror image of the Cost plus
Return basis adopted for determining tariff."
G 8. We may state that price discovery/mechanism is a com-
plicated exercise. Moreover, on account of economic factors,
price variation takes place throughout the year. \Ne do not wish ,., .
to rule out the formula suggested by CEC. Ultimately, as stated
in our Order dated 23.11.07, Siil is required to deposit 5% of
H its annual profits before tax and interest from Lanjigarh Pf.oject
T.N. GODAVARAMAN THIRUMULPAD v. UNIO,N OF 1099
. INDIAAND ORS.
~
,,
or Rs.10 crores whichever is higher as contribution for Sched- A
uled Area Development. This contribution is to be made every
year commencing from 1.4.07. Under clause (i) of Rehabilita-
tion Package, SPV has to account for Scheduled Area Devel-
opment. Further under the said Package. Siil is also required
.. )< to contribute Rs.12.20 crores towards tribal development apart B
from payment of NPV and apart from contribution to the Man-
agement of Wildlife around lanjigarh Bauxite Mine (See: clause
(ii) of the Rehabilitation Package). While allocating CAMPA
Funds the said amount of Rs.12.20 crores shall be earmarked
specifically for tribal development. Therefore, we are of the view c
that, at the pre-operational stage, we need not apply the price
mechanism suggested by CEC. If at the end of the Accounting
Year of Siil, CEC finds that the annual profits before tax and
interest is depressed by the pricing mechanism mentioned in
joint venture Agreement dated 5.10.04 vide clause 2.3.3(a) then
D
it would be open to CEC to move this Court with the suggested
·" )' price mechanism in its Report. In fact, in our Order dated
23.11.07 we have directed that the Accounts of SPV to be au-
dited by Auditor General for State of Orissa after they are pre-
pared by the statutory auditors of OMCL. It would be open even
to the statutory auditors of OMCl as well as CEC to inform this E
Court at the end of the Accountin,g Year whether annual profits
before tax and interest stands depressed for any reason and at
that stage we will certainly consider the price mechanism sug-
gested by CEC in its Report placed before us.
F
;. "'t
9. For the above reasons and in the light of the Affidavits
filed by Siil, OMCL and State of Orissa, accepting the Reha-
bilitation Package, suggested in our Order 23.11.07, we hereby
grant clearance - to the forest diversion proposal for diversion
of660.749 ha of forest land to undertake bauxite mining on the
G
Niyamgiri Hills in Lanjigarh. The next step would be for MoEF to
grant its approval in accordance with law.
;; "
10. I.A. No.2134 of 2007 is disposed of accordingly.

R.P. lnteralocutory Application disposed of.
H

~I