What was the core dispute in this case?

Whether the mining lease was indirectly sold through company conversion and share sale, amounting to an illegal transfer without permission.

Why did the Supreme Court lift the corporate veil?

To see the real deal behind form. The firm became a company, then all shares were sold for a price—effectively selling the lease.

Which rule was said to be violated?

Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986, which restricts transfer of lease without permission.

What doctrine guided the Court’s approach?

The public trust doctrine—state resources cannot be privately traded for profit without lawful permission.

What was the final outcome?

The transaction was quashed. The earlier transfer order was held void, and the State’s cancellation was justified.

State of Rajasthan v. Gotan Lime Stone Khanji Udyog Pvt. Ltd

Easy classroom-style explainer on mining lease transfers, corporate veil, Rule 15, and the public trust doctrine.

Supreme Court of India Year: — Citation: — Mining & Administrative Law Reading Time: ~6 min Author: Gulzar Hashmi India

Quick Summary

A firm with a limestone mining lease became a company. Soon, all company shares were sold for a high price. The State saw this as a back-door sale of the lease without permission. The High Court set aside the State’s action. The Supreme Court lifted the corporate veil, treated the deal as an illegal transfer, and upheld the State’s cancellation, applying the public trust idea.

Issues

Was there an illegal transfer of the mining lease?
Should the conversion to a company and the later sale of all shares be read together as one scheme?
Was the State right to cancel the lease/transfer order that the High Court had protected?

Rules

A leaseholder cannot sell or transfer the mining lease for consideration without the competent authority’s permission (Rule 15, 1986 Rules).

If a partnership turns into a company, and then the entire shareholding is sold for price, this can be treated as a sale of the lease in substance.

Courts can lift the corporate veil to see the real transaction and protect the public trust in natural resources.

Facts (Timeline)

Leaseholder: Gotan Limestone Khanji Udyog (GLKU), a partnership firm, held a limestone mining lease.

2012—Conversion Plan: GLKU applied to transfer the lease to a private company formed from the firm, with the same persons as directors. It claimed no money benefit and no third party.

25 Apr 2012—Permission: Transfer allowed. Company became GLKUPL.

After Transfer: GLKUPL sold all its shares to another company for about ₹160 crore instead of running the mine itself.

21 Apr 2014—Show Cause: State alleged a roundabout sale of the lease without permission; directors changed; control moved to a listed group company.

State Action: Declared the 25 Apr 2012 order void for breach of Rule 15. Respondents filed a writ (No. 9669/2014).

HC Result: Single Judge and then Division Bench favoured the respondents; found no violation.

Supreme Court: State appealed. The Court examined both transactions together.

Arguments

Appellant (State of Rajasthan)

Lease was indirectly sold by converting to a company and then selling 100% shares for price.
This is a transfer without permission under Rule 15; public resources cannot be traded privately.

Respondents (GLKUPL)

Law allows change of directors/shareholders; no express bar was breached.
Lease remained with the same company; only ownership of shares changed.

Judgment

The Supreme Court quashed the transaction. It lifted the corporate veil and held that the lease rights were effectively sold for consideration through the share deal, which is illegal without permission.

State’s cancellation was justified in public interest.
High Court’s orders were set aside to the extent they protected the transaction.

Ratio

Substance over form. When a leaseholder converts into a company and immediately sells all shares for price, the Court may treat it as a transfer of the lease.

Such transfer needs prior permission. Natural resources are held in public trust; private profit cannot bypass statutory controls.

Why It Matters

Prevents lease trafficking via corporate structures.
Reinforces Rule 15 safeguards for mineral resources.
Strengthens the public trust doctrine in resource allocation.

Key Takeaways

Entire share sale can equal lease transfer in substance.

Permission is mandatory for any transfer of rights.

Courts may lift the veil to block evasive schemes.

Mnemonic + 3-Step Hook

Mnemonic: “CONVERT—CONTROL—CONSIDERATION”

Convert: Firm becomes a company.
Control: 100% shares move to a new owner.
Consideration: Big price = hidden sale of the lease → needs permission.

IRAC Outline

Issue: Do the conversion and full share sale amount to an illegal lease transfer justifying cancellation?

Rule: Rule 15 bars transfer without approval. Courts can look through form and apply public trust principles.

Application: Here, the permission was for internal conversion only. The later share sale for price shifted control of the lease to a third party.

Conclusion: The scheme was an unauthorised transfer. State’s cancellation stands.

Glossary

Corporate Veil: Legal cover that separates company identity from owners; can be lifted to detect misuse.
Public Trust Doctrine: State holds natural resources for the public; private gain cannot override law.
Lease Transfer: Moving rights in a lease to another person/entity; usually needs prior approval.
Rule 15 (1986 Rules): Provision controlling transfer of minor mineral leases in Rajasthan.