Introduction

Parliament recently passed the Mines and Minerals (Development and Regulation) Amendment Act 2016, amending the Mines and Minerals (Development and Regulation) Act 1957. The 2016 act was published and came into force on May 9 2016. While the enabling rules pursuant to the 2016 act have not yet been finalised, a draft has been circulated for public comment. The 2016 act seeks to:

  • permit the transfer of captive mining leases granted through methods other than auction; and
  • provide clarity on the dumping of mining waste.

This update discusses the first of the above changes.

Background

In 2015 the 1957 act was amended by the Mines and Minerals (Development and Regulation) Amendment Act 2015. Among other things, the 2015 act permitted mining lease holders to transfer leases to any eligible person with state government approval. However, the 2015 act restricted transfers to "concessions which [were] granted through auction", thereby excluding the transfer of mining leases granted through other procedures. This restriction affected big-ticket mergers and acquisitions, including LafargeHolcim's proposed disinvestment plan and Jai Prakash Associates' sale of its cement plants, which were called off and delayed, respectively.

Change in law

The 2016 act has addressed the above concerns. The 1957 act, as amended, now allows for the transfer of mining leases granted other "than through auction and where minerals from such mining lease [are] being used for captive purpose". The expression 'used for captive purpose' has been defined to mean that all extracted minerals are being used by the lessee's manufacturing unit. Therefore, mining lessees (other than in respect of coal, lignite and atomic minerals) will now be entitled to transfer their mining leases for captive purposes with the necessary government approval. Pursuant to the 2016 act, holders of captive user mines (eg, concessionaires of auctioned mines) will be deemed to have received approval for the transfer of the mine if the state government does not respond within 90 days.

This will address the concerns of many companies, as the previous legislation had begun to hinder mergers and acquisitions in sectors dependent on captive mines (eg, the cement industry). The amendment will allow companies facing financial difficulties which have captive mines supporting their businesses to exit these businesses and mines and monetise their assets. This should help to prevent units from becoming distressed and help to prevent unemployment by introducing new investments. This should also help banks and other financial stakeholders in such businesses to recover loans.

Comment

The 2016 act has addressed the concerns of various stakeholders by introducing enabling provisions to transfer captive user mines. This should boost M&A activity in sectors dependent on captive mines.

The 2016 act has also addressed the concerns of banks and financial institutions with non-performing assets and bad debts by providing that the proceeds from the sale of assets made possible by the 2016 act may be used to discharge debts.

For further information on this topic please contact Abhishek Saxena at Phoenix Legal by telephone (+91 11 4983 0000) or email (abhishek.saxena@phoenixlegal.in). The Phoenix Legal website can be accessed at www.phoenixlegal.in.

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