STATE OF RAJASTHAN AND ORS. versus GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR.

Citation: [2016] 1 S.C.R. 216 · Decided: 20-01-2016 · Supreme Court of India · Bench: ANIL R. DAVE · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
[2016] I S.C.R. 216 
STATE OF RAJASTHAN AND ORS. 
v. 
GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR. 
(Civil Appeal No. 434 of2016) 
B 
JANUARY 20, 2016 
[ANIL R. DAVE AND ADARSH KUMAR GOEL, JJ.] 
Rajasthan Minor Mineral Concession Rules, 1986 - r.15 -
Mining rights - Transfer of - Partnership firm holding mining rights 
C 
- The firm, after converting itself from a partnership firm into a 
private limited company, sought transfer of mining rights to the 
company - Mining rights transferred by the State - Thereafter the 
company, without permission of the State, transferred its entire 
shareholding for share price to another company and itself became 
D 
E 
its subsidiary company - Propriety of transfer - Held: Mining rights 
belong to State and not to lessee and are regulated consistent with 
the doctrine of public trust - Lessee has no right to profiteer by 
trading such rights - Transfer of lease for private benefit without 
corresponding benefit to the public or the State is not permissible -
The original lessee had sought transfer by giving false declaration 
- On lifting the corporate veil, it is evident that the corporate entity 
has been used to conceal the real transaction of transfer of mining 
lease to a third party, for consideration, without statutory consent 
- Such transfer, being in violation of the rules, is void - Direction 
to the State to frame and notify its policy for exercise ?fits power of 
permitting or refusing transfer of mining lease - Till the policy is 
F framed and an order in accordance therewith is passed by the State, 
status quo to be maintained. 
G 
Doctrine - Doctrine of lifting of corporate veil - applicability 
of- Held: The doctrine is applicable not only to unravel tax evasion, 
but also where protection of public interest is of paramount 
importance. 
Allowing the appeal, the Court 
HELD: 1. In the present case there are two transactions. 
The first transaction is of transfer of lease from the firm to the 
company. In the second transaction, the entire shareholding is 
H transferred for share price and control of mining lease is acquired 
216 
STATE OF RAJASTHAN AND ORS. v. GOTAN LIME STONE 
217 
KHANJI UDYOG PVT. LTD. 
by the holding company without any apparent price for lease. A 
Viewed separately, there may be nothing wrong with either or 
both the transactions, but if real nature of transaction is seen, 
the illegality is patent. The partnership firm holding lease-hold 
rights has successfully transferred the said rights to a third party 
for consideration in the form of share price which is nothing but B 
price for sale of mining lease which is not allowed and for which 
no permission has been granted. Thus, if these facts were 
disclosed to the competent authority, permission for transfer of 
mining rights for financial consideration could not have been 
allowed. Mining rights belong to the State and not to the lessee 
and the lessee has no right to profiteer by trading such rights. 
C 
Lessee can either operate the mine or surrender or transfer, 
only with the permission of the authority as legally required. In 
the present case, the lessee has achieved indirectly what could 
not be achieved directly by concealing the real nature of the 
transaction. [Para 22] [231-G-H; 232-A-D] 
D 
2. The principle of lifting the corporate veil as an exception 
to the distinct corporate personality of a company or its members 
is well recognized not only to unravel tax evasion but also where 
protection of public interest is of paramount importance and the 
corporate entity is an attempt to evade legal obligations and lifting 
of veil is necessary to prevent a device to avoid welfare legislation. 
E 
In the present case, the corporate entity has been used to conceal 
the real transaction of transfer of mining lease to a third party for 
consideration without statutory consent by terming it as two 
separate transactions - the first of transforming a partnership 
into a company and the second of sale of entire shareholding to 
F 
another company. The real transaction is sale of mining lease 
which is not legally permitted. Thus, the doctrine of lifting the 
veil has to be applied to give effect to law which is sought to be 
circumvented. [Paras 23 and 26] [232-E-F; 235-E-F] 
Workmen Employed in Associated Rubber Industry Ltd., 
G 
Bhavnagar vs. Associated Rubber Industry Ltd., 
Bhavnagar (1985) 4 SCC 114; State of U.P. vs. 
Renusagar Power Co. (1988) 4 SCC 59: 1988 (1) Suppl. 
SCR

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