In landmark ruling, SC strikes down State's power to seize private property

The ruling calls into question the doctrine of eminent domain, where state could summarily acquire private property, particularly land, for public use, and redefines the economic powers of the state

In a significant decision limiting the economic powers of the state in India, a nine-judge bench of the Supreme Court has pushed back against the government appropriation of private property. However, it has not struck down the ambit of the different land acquisition acts, including the central government’s Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013 (FARR).

 

While the FARR Act sought to limit the right of the state to commandeer any land for acquisition on the grounds of public purpose, the Constitution bench headed by Chief Justice DY Chandrachud went further in its order today. It sought to nullify the principle that the state has the right to use any property, including land or other resources, as a matter of right.

 

“The reference was about the interpretation of Article 39(b) of the Indian Constitution,” said Neha Gupta, Principal Associate, Athena Legal. The article is part of the Directive Principles of the Constitution. It notes that “The State shall, in particular, direct its policy towards securing… (so) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.”

 

The judgment held that the state cannot claim that every resource of the country is a “community good.” “The interpretation of Article 39(b), both as a precursor to the protection of Article 31C and as an aspirational Directive Principle, cannot run counter to the constitutional recognition of private property,” the judgment noted.

 

However, the judgment “does not appear to affect land acquisition per se,” said Suhaan Mukerji, founding partner of PLR Chambers, a law firm specialising in public policy and regulatory affairs across India. “Also, since it sets out non-exhaustive parameters on when land, water, and other public trust assets can come under Article 39(b), it could help government acquisition depending on what the natural resource is,” he added.

 

The majority decision, 7:1:1 (Justice B V Nagarathna partially concurred while Justice S Dhulia dissented), noted that the power of acquisition by the state of a property is not absolute, even if it fulfils all due processes of law. The court noted that the Indian economy has already transitioned from a dominance of public sector-led investment to an arena where there is a co-existence of public and private sector-led investments. Speaking for the majority opinion, Chief Justice Chandrachud noted that the vision of the Indian Constitution was to establish an economic democracy and trust the wisdom of the elected government. “To scuttle the constitutional vision by imposing a single economic dogma that views the acquisition of private property by the state as the ultimate goal would undermine the values and principles of our constitutional framework,” he said.

 

The court held that “in some cases, the mere vesting of the resource in the hands of the government serves the ‘common good,’ while in other cases, a resource may be distributed amongst private players to achieve this purpose… (but) while distributing such resources, the state is bound to act in consonance with the principles of public trust so as to ensure that no action is taken which is detrimental to public interest.”

 

“I entirely agree with the learned Supreme Court. The market economy does not work without property rights,” said MS Sahoo, founding chairman of the Insolvency and Bankruptcy Board of India and a legal expert.

 

“Over the years, successive governments have sought to limit what can be acquired,” said another lawyer dealing with infrastructure-related legal issues. It is a sector where land for roads, railways, ports, and other state-sponsored projects often gets acquired. The lawyer noted that compared to earlier eras, state governments have already become circumspect about such processes.

 

Land acquisition to convert those to non-agricultural use for manufacturing units or for real estate had become highly controversial in the wake of the passage of the Special Economic Zones Act of 2006. Following large-scale protests, particularly in West Bengal at Singur and Nandigram, in Raigad in Maharashtra, and other places, the government introduced FARR, which limited the scope of state acquisition. It mandated that at least 70 per cent of the land losers have to agree to the acquisition, even for entirely state-operated projects. However, some of the southern states created a carve-out to retain the eminent domain power of acquisition for certain types of projects.

 

This principle holds that land acquisition is based on the doctrine of ‘eminent domain,’ which is similar to the public trust doctrine. The doctrine of eminent domain provides that the state has overarching control over the land, guided by two principles: the welfare of the people is the most important, and public necessity is greater than private necessity. The judgment has questioned this doctrine, holding that not every resource owned by private players could be treated as a “material resource of the community” to be used by the government to serve the “common good.”