{"id":301125,"date":"2025-06-19T00:42:25","date_gmt":"2025-06-19T00:42:25","guid":{"rendered":"https:\/\/peraltafinancing.com\/uncategorized\/reimbursing-mineral-royalty-hikes-a-policy-perspective\/"},"modified":"2025-06-19T00:42:25","modified_gmt":"2025-06-19T00:42:25","slug":"reimbursing-mineral-royalty-hikes-a-policy-perspective","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=301125","title":{"rendered":"Reimbursing Mineral Royalty Hikes: A Policy Perspective"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div>\n<h3>Judicial and Policy Milestones<\/h3>\n<p>Key developments in this area have been shaped by a combination of judicial pronouncements and policy circulars, including:<\/p>\n<ol>\n<li><strong>Policy<\/strong><strong> Circular <a href=\"https:\/\/www.foxmandal.in\/wp-content\/uploads\/2025\/06\/Policy-Circular-No.-1852015-Dated-27.11.2015.pdf\">No. 185\/2015<\/a> (Dated 27.11.2015) \u2013<\/strong> Established the principle of reimbursement of increased royalty charges due to legislative changes under Item Rate Contracts.<\/li>\n<li><strong>Policy Circular <a href=\"https:\/\/www.foxmandal.in\/wp-content\/uploads\/2025\/06\/Policy-Circular-No.-2.5.112019-Dated-17.05.2019.pdf\">No. 2.5.11\/2019<\/a> (Dated 17.05.2019)<\/strong> \u2013 Extended the reimbursement mechanism to DBFOT and EPC projects, and introduced an Indemnity Bond to safeguard NHAI\u2019s financial interests.<\/li>\n<li><strong>Supreme Court Judgment (Dated 25.07.2024)<\/strong> \u2013 In <em>Mineral Area Development Authority &amp; Anr. v. M\/s Steel Authority of India &amp; Anr. [Civil Appeal Nos. 4056-4064 of 1999]<\/em>, a Nine-Judge Bench of the Hon\u2019ble Supreme Court of India ruled that <strong>\u201c<em>Royalty is not a Tax<\/em>.\u201d<\/strong><\/li>\n<li><strong>Policy Circular <a href=\"https:\/\/www.foxmandal.in\/wp-content\/uploads\/2025\/06\/Policy-Circular-No.-2.5.172025-Dated-13.03.2025.pdf\">No. 2.5.17\/2025<\/a> (Dated 13.03.2025)<\/strong> \u2013 Issued by NHAI following the 2024 Supreme Court judgment, this circular eliminates the Indemnity Bond requirement, thereby bringing greater clarity and procedural efficiency.<\/li>\n<\/ol>\n<p>This article traces the evolution of NHAI\u2019s policy on royalty reimbursement, exploring the legal backdrop, the rationale for each policy shift, and the practical implications for stakeholders.<\/p>\n<h3>Policy Circular No. 185\/2015 (Dated 27.11.2015)<\/h3>\n<p>The Hon\u2019ble Supreme Court of India, in its decision in <em>National Highways Authority of India v. ITD Cementation India Limited<\/em> <em>[2015 SCC OnLine SC 384]<\/em> dated 24.04.2015 (hereinafter referred to as the \u201c<strong>2015 Supreme Court Ruling<\/strong>\u201d), ruled on the reimbursement of increased royalty charges due to legislative changes in Item Rate Contracts. The Court upheld that contractors should be compensated for such increases if the contract allowed for price adjustments under \u201c<em>Change in Law<\/em>\u201d provisions. Subsequently, review petitions filed against this judgment were dismissed on 13.10.2015, reinforcing the Court\u2019s decision.<\/p>\n<p>In light of the above 2015 Supreme Court ruling, NHAI issued Policy Circular No. 185\/2015 on 27.11.2015, which:<\/p>\n<ul>\n<li>Allowed reimbursement of increased royalty charges for minor minerals in Item Rate Contracts, provided the increase stemmed from subsequent legislation.<\/li>\n<li>Confirmed that such payments were covered under the \u201c<strong>Change in Law<\/strong>\u201d provisions of contractual agreements.<\/li>\n<li>Reinforced the principle that contractors should not be financially burdened due to statutory changes.<\/li>\n<\/ul>\n<p>However, at this stage, the policy only applied to Item Rate Contracts. There was no explicit guidance for DBFOT (Toll\/Annuity\/HAM) or EPC contracts. This created a policy vacuum, leading to legal queries from contractors and necessitating further guidance.<\/p>\n<h3>Policy Circular No. 2.5.11\/2019 (Dated 17.05.2019)<\/h3>\n<p>Following the 2015 Supreme Court ruling, NHAI sought legal advice from the Additional Solicitor General of India on 17.07.2018 regarding the applicability of the 2015 Policy Circular to DBFOT and EPC contracts.<\/p>\n<p>Based on this legal opinion, NHAI issued the \u00a02019 Policy Circular and decided to:<\/p>\n<ul>\n<li>Extend the reimbursement of increased royalty charges to DBFOT (Toll\/Annuity\/HAM) and EPC contracts under Change in Law provisions.<\/li>\n<li>Accept claims from contractors and concessionaires, subject to detailed Standard Operating Procedures (SOPs).<\/li>\n<\/ul>\n<p>The 2019 circular introduced specific guidelines for claim processing:<\/p>\n<p><strong>a) Eligibility Criteria<\/strong>:<\/p>\n<ul>\n<li>Reimbursement would apply only if the increase in the royalty charges is qualified as a \u201c<strong>Change in Law<\/strong>\u201d event.<\/li>\n<li>The legislative change must have occurred post the Base Date (EPC Contracts) or post the Bid Due Date (DBFOT Contracts).<\/li>\n<\/ul>\n<p><strong>b) Notification and Claim Submission<\/strong>:<\/p>\n<ul>\n<li>EPC Contractors must notify within 15 days of becoming aware of the increased cost.<\/li>\n<li>Concessionaires (DBFOT) must notify within 30 days.<\/li>\n<\/ul>\n<p><strong>c) Verification and Certification<\/strong>:<\/p>\n<ul>\n<li>Claims must be verified by the Authority\u2019s Engineer (EPC) or Independent Engineer (DBFOT).<\/li>\n<li>In DBFOT projects, claims also require certification by the statutory auditor regarding the financial impact before processing.<\/li>\n<\/ul>\n<p><strong>d) Indemnity Bond Requirement<\/strong>: NHAI has been reimbursing contractors for increases in royalty under the <strong>\u201cChange in Law\u201d<\/strong> provisions, based on the assumption that such charges are valid and enforceable. However, the matter was under review by a Nine-Judge Bench of the Hon\u2019ble Supreme Court, which was examining conflicting decisions in:<\/p>\n<ul>\n<li><em>India Cement Limited and Others. v. State of Tamil Nadu and Others [1989 SCC OnLine SC 47]<\/em> dated October 25, 1989, wherein royalty was held to be a tax, and<\/li>\n<li><em>State of West Bengal v. Kesoram Industries Limited [2004 SCC OnLine SC 70] dated January 15, 2004<\/em>, wherein royalty was held to be a fee or consideration for land use.<\/li>\n<\/ul>\n<p>The final verdict in the matter was expected to have significant retroactive implications:<\/p>\n<ul>\n<li>If royalty were to be declared a <strong>tax<\/strong> and if the State were held to lack the constitutional authority to impose it, then any such payment, including those reimbursed by NHAI, could\u2019ve been challenged.<\/li>\n<li>Contractors might have <strong>claimed refunds from NHAI<\/strong> or initiated disputes questioning the validity of past payments and reimbursements.<\/li>\n<\/ul>\n<p>To mitigate NHAI\u2019s risk pending resolution of whether royalty constituted a tax, contractors\/concessionaires were required to submit an Unconditional Indemnity Bond before any reimbursement was made.<\/p>\n<p>This indemnity bond:<\/p>\n<ul>\n<li>Shifted the risk of an adverse Supreme Court decision back to the contractor\/concessionaire.<\/li>\n<li>Protected NHAI from having to bear financial liability if the Court ultimately held that the royalty was an unconstitutional tax.<\/li>\n<li>Provided a legal remedy for recovery of reimbursed amounts, if needed, based on the Supreme Court\u2019s final ruling.<\/li>\n<\/ul>\n<h3>2024 Supreme Court Ruling: \u201cRoyalty is Not a Tax\u201d<\/h3>\n<p>The Nine-Judge Bench of the Supreme Court of India, in <strong><em>Mineral Area Development Authority &amp; Anr. v. M\/s. Steel Authority of India &amp; Anr<\/em><\/strong> <em>[Civil Appeal Nos. 4056-4064 of 1999]<\/em> dated 25.07.2024 finally ruled that <strong>\u201croyalty is not a tax\u201d (<\/strong>hereinafter referred to as the<strong> \u201c2024 Supreme Court Ruling\u201d).<\/strong><\/p>\n<p>Following this landmark ruling:<\/p>\n<ul>\n<li>Royalty is now recognized as a recoverable cost, not a tax.<\/li>\n<li>NHAI\u2019s risk of reimbursement being rendered unconstitutional was eliminated. The need for an Indemnity Bond to guard against this risk was eliminated.<\/li>\n<\/ul>\n<p>This decision prompted the issuance of a new policy circular in 2025.<\/p>\n<h3>Policy Circular No. 2.5.17\/2025 (Dated 13.03.2025)<\/h3>\n<p>The Executive Committee, in its 653rd meeting, adopted the following measures:<\/p>\n<ul>\n<li>Existing policies (Circulars of 2015 and 2019) would continue to apply.<\/li>\n<li>The Indemnity Bond requirement was officially withdrawn.<\/li>\n<li>Future payments would be governed solely by contractual provisions, including price adjustment mechanisms and relevant indices such as the Wholesale Price Index (WPI).<\/li>\n<\/ul>\n<p>This change streamlines the claims process and aligns policy with the final judicial determination on the nature of royalty.<\/p>\n<h3>Conclusion<\/h3>\n<p>The evolution of NHAI\u2019s policy on reimbursement of increased royalty charges demonstrates a responsive and structured approach to legal developments:<\/p>\n<ol>\n<li><strong>2015 Supreme Court Ruling<\/strong> \u2013 Established the right to reimbursement under Item Rate Contracts.<\/li>\n<li><strong>2015 NHAI Circular<\/strong> \u2013 Implemented reimbursement but limited to Item Rate Contracts.<\/li>\n<li><strong>2019 NHAI Circular<\/strong> \u2013 Extended to DBFOT and EPC projects with procedural safeguards.<\/li>\n<li><strong>2024 Supreme Court Ruling<\/strong> \u2013 Declared royalty is not a tax, impacting previous policies.<\/li>\n<li><strong>2025 EC Decision<\/strong> \u2013 Removed Indemnity Bond requirement and upheld contractual provisions for reimbursement.<\/li>\n<\/ol>\n<p>This policy evolution demonstrates how judicial pronouncements and policy decisions shape contractual obligations in the infrastructure sector. With the 2024 Supreme Court ruling providing final clarity, contractors and concessionaires can now claim royalty charges as reimbursements without additional financial safeguards, streamlining the process for all stakeholders involved.<\/p>\n<h3>Action Points for Stakeholders<\/h3>\n<ul>\n<li>Contractors\/Concessionaires may continue to file royalty reimbursement claims under the existing contractual provisions.<\/li>\n<li>No Indemnity Bond is required anymore.<\/li>\n<li>All concerned authorities must process claims in accordance with the Circulars of 2015 &amp; 2019, read with the 2024 Supreme Court Ruling.<\/li>\n<\/ul><\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>Judicial and Policy Milestones Key developments in this area have been shaped by a combination of judicial pronouncements and policy circulars, including: Policy Circular No. 185\/2015 (Dated 27.11.2015) \u2013 Established the principle of reimbursement of increased royalty charges due to legislative changes under Item Rate Contracts. Policy Circular No. 2.5.11\/2019 (Dated 17.05.2019) \u2013 Extended the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":301126,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[133240,133241,97460,132978,133239,97,133242,133243,133244,133245],"tags":[103081,133246,11185,8707,13439,6036,2842,133247,133248,133249,12666,11572,74678,23528,133250],"dealstore":[],"offerexpiration":[],"class_list":["post-301125","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-foxmandal-2","category-highwayconstruction","category-india","category-infrastructure","category-infrastructure-energy","category-legal","category-mineralroyalty","category-minorminerals","category-nhai","category-royaltyreimbursement","tag-foxmandal","tag-highwayconstruction","tag-hikes","tag-india","tag-infrastructure","tag-legal","tag-mineral","tag-mineralroyalty","tag-minorminerals","tag-nhai","tag-perspective","tag-policy","tag-reimbursing","tag-royalty","tag-royaltyreimbursement"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Reimbursing Mineral Royalty Hikes: A Policy Perspective - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=301125\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reimbursing Mineral Royalty Hikes: A Policy Perspective - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"Judicial and Policy Milestones Key developments in this area have been shaped by a combination of judicial pronouncements and policy circulars, including: Policy Circular No. 185\/2015 (Dated 27.11.2015) \u2013 Established the principle of reimbursement of increased royalty charges due to legislative changes under Item Rate Contracts. 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