Disposal of all natural resources through auctions is not a constitutional mandate – Supreme Court says no interference with 2G verdict

The Constitutional Bench headed by Chief Justice Kapadia delivered its opinion on the Presidential Reference made with regard to the allocation of natural sources. Justice DK Jain, delivering the majority opinion, observed that there was no constitutional mandate to dispose of natural resources through auction alone. The opinion also held that the above finding would in no way affect the judgment delivered earlier this year which directed the cancellation of 122 2G licenses (2G judgment)..The Constitutional Bench headed by Chief Justice Kapadia delivered its opinion on the Presidential Reference made with regard to the allocation of natural sources. Justice DK Jain, delivering the majority opinion, observed that there was no constitutional mandate to dispose of natural resources through auction alone. The opinion also held that the above finding would in no way affect the judgment delivered earlier this year which directed the cancellation of 122 2G licenses (2G judgment)..The first 55 pages of the 208-page opinion dwelt on the preliminary objection of maintainability, with the Bench finally holding that “….this Reference is maintainable, notwithstanding its effect on the ratio of the 2G Case, as long as the decision in that case qua lis inter partes is left unaffected”..The fact that the Bench did not want to interfere in the 2G judgment became clearer when the Court held (in Para 80) that the “the observations in Paras 94 to 96 [of the 2G judgment] could not apply beyond the specific case of spectrum…”.Once this point was made unambiguous, the Bench went on to examine the various methods adopted by the State for the distribution of “largesse, grant of contracts or allotment of land” and that the same must be tested “on the touchstone of Article 14 of the Constitution.”.In paragraph 105, the Bench opined that:.“[A] State action has to be tested for constitutional infirmities qua Article 14 of the Constitution. The action has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment.”…120. ….the submission that the mandate of Article 14 is that any disposal of a natural resource for commercial use must be for revenue maximization, and thus by auction, is based neither on law nor on logic.There is no constitutional imperative in the matter of economic policies…..Article 14 does not pre-define any economic policy as a constitutional mandate. Economic logic establishes that alienation/allocation of natural resources to the highest bidder may not necessarily be the only way to subserve the common good, and at times, may run counter to public good. Hence, it needs little emphasis that disposal of all natural resources through auctions is clearly not a constitutional mandate.”.The Court went on to hold that, in fact, mandatory auctions “may be contrary to economic logic” and that “[D]ifferent resources may require different treatment.”.With respect to whether a court can examine the method adopted for resource allocation, the Apex Court stated that there can be judicial scrutiny of the “legality and constitutionality” of the methods used..However, the Court also said (in paragraph 146) that such scrutiny would not mean an examination of “which policy is fairer than the other” but rather if the policy “falls foul” of the mandates of Article 14. Even while clarifying that allocation is a policy decision and implemented via “executive prerogatives” and hence beyond the scope of judicial scrutiny, the Court did state that there may be occasions where such policy decisions could face “the wrath of Article 14”..Specifically dealing with auctioning, the Bench observed (in paragraph 148) that:.“[A]uction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction.Once again steering clear of any attempt to affect the 2G judgment, the Court declined to answer the remaining questions raised in the Presidential Reference, stating (in paragraph 151) that:.“As regards the remaining questions, we feel that answer to these questions would have a direct bearing on the mode of alienation of Spectrum and therefore, in light of the statement by the learned Attorney General that the Government is not questioning the correctness of judgment in the 2G Case, we respectfully decline to answer these questions.” .But perhaps the most interesting and entertaining aspect of the judgment lay in the separate opinion of Justice Jagdish Singh Khehar. On the subject of judicial review, the learned judge opines that the same does not entitle a court to “suggest an alternative policy, which in the wisdom of the Court could be better suited in the circumstances of a case.”.The Judge goes on to add in paragraph 8 that if a State contract had been entered into after taking into consideration, “the interest of the State and the public” then the Court would not interfere in the same by “assuming the position of an appellate authority.”.Justice Khehar, concurring with the majority opinion, also states that.“…when natural resources are made available by the State to private persons for commercial exploitation exclusively for their individual gains, the State’s endeavour must be towards maximization of revenue returns. This alone would ensure, that the fundamental right enshrined in Article 14 of the Constitution of India (assuring equality before the law and equal protection of the laws), and the directive principle contained in Article 39(b) of the Constitution of India (that material resources of the community are so distributed as best to subserve the common good), have been extended to the citizens of the country.”.However, and this is where things get interesting, Justice Khehar notes that debates surrounding the allocation of natural resources (coal allocation) have led to a “washout of two sessions of Parliament” and that the Presidential Reference appears to be a method adopted to “iron out the creases, so that legal and constitutional parameters are correctly understood.”.Examining the fourth question raised in the Presidential Reference, Justice Khehar once again expresses concurrence with the majority opinion; Courts will not interfere in policy decisions if the same do not fall foul of Article 14..However, he goes a step further to observe that even a “forthright and legitimate policy” may take the “shape of an illegitimate stratagem” at stage of implementation. Creating the purely “hypothetical” fact sitatuation of coal allocation, and using the provision of Section 11A of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), Justice Khehar illustrates how even the legitimate policy of the granting mining leases through competitive bidding can become “unacceptable in law” due to “defective implementation) (See pp 204 to 207).In conclusion, the Judge states that:.“…no part of the natural resource can be dissipated as a matter of largess, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to “best subserve the common good”. It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable.”