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Auction not the only permissible way to dispose of natural resources, says SC

In its answer to Presidential reference, highlights public good as key, stresses the need for transparency in each casef

BS Reporter  |  New Delhi 

The Supreme Court on Thursday answered the Presidential reference, saying “auctions are not the only permissible method for disposal of natural resources, across all sectors and in all circumstances”.

The Constitution bench, presided over by Chief Justice S H Kapadia, clarified the doubts on the February 2 judgment by another bench that had ordered the cancellation of 122 telecom licences.

The opinion of the court explained “auction as a mode cannot be conferred the status of a Constitutional principle. Alienation of natural resources is a policy decision and the means adopted for the same are, thus, executive prerogatives”.

Chronology of events that led to the Presidential reference
MAY 2007
A Raja takes charge as communications minister
JAN 2008
DoT decides to issue licences on a 
first-come-first-served basis; advances the cut-off date to September 25 from October 1, 2007
OCT 2009
CBI lodges FIR against some DoT officials under the Prevention of Corruption Act; raids DoT offices
NOV 2010
CAG gives to SC its report on the 2G spectrum allocation; pegs a notional loss of Rs 1.76 trillion to the exchequer
FEB 2012
SC orders cancellation of 122 telecom licences allocated to nine companies; says natural resources cannot be allocated on a first-come-first-served basis
MAY 2012
Govt withdraws review petition in 2G case, prefers to go ahead with a Presidential reference 

SEP 2012
SC gives its opinion on questions referred by the President; says:

  • Auctions are not the only permissible method for disposal of all natural resources, across all sectors and in all circumstances
  • Revenue maximisation is secondary to public good
  • There is no Constitutional mandate for auction of all forms of natural resources

The court, however, cautioned that “when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit-maximising private entrepreneurs, adoption of means other than those that are competitive and maximise revenue may be arbitrary and face the wrath of Article 14 (right to equality) of the Constitution”.

SC stressed the need for transparency in the procedure in each case. Depending on the facts and circumstances of the case, the court could exercise its power of judicial review.

Is auction the only method for disposal of natural resources across all sectors?
Doesn’t the proposition that auction is the only route for disposal of natural resources run contrary to several SC judgments?
Won’t the enunciation of a broad principle mean formulation of policy and unsettle policy decisions of governments over the years?
Partly, yes
What’s the scope for courts’ interference in govt’s policy making?
Judicial review is permissible if the decision is arbitrary, unfair and conflicts with the rules on equality in Article 14 of the Constitution
If a court holds a policy is flawed, is it not obliged to consider investments made under the policy, including by foreign investors?
Depends on the facts and circumstances of each case
Note: In view of these answers, SC did not go into three other questions that referred to the 2G judgment, which govt has unconditionally accepted and is implementing; * The questions have been rephrased

“Rather than prescribing or proscribing a method, we believe, a judicial scrutiny of methods of disposal of natural resources should depend on the facts and circumstances of each case, in consonance with the principles that we have culled out. Failing which, the court, in exercise of power of judicial review, shall term the executive action as arbitrary, unfair, unreasonable and capricious due to its antimony with Article 14,” the opinion, written by judge D K Jain for four of his brother judges, emphasised. Judge Jagdish Kehar wrote a separate but concurring opinion.

Explaining the court’s view, it said: “Auction, despite being a more preferable method of alienation/allotment of natural resources, cannot be held a constitutional requirement or limitation for all natural resources and, therefore, every method other than it cannot be struck down as ultra vires the constitutional mandate.”

The government clarified it was not asking for a review of the 2G spectrum judgment, but only seeking the court’s clarification on valid methods of distribution of natural resources.

The doubt had arisen as three paragraphs in the 2G scam judgment had given an impression that auction was the only permissible method across sectors. The present opinion clarified that the observations in that judgment were confined to the 2G spectrum licensing process, which led to the scam and eventual cancellation of the licences and prosecution of the then telecom minister A Raja, besides others.

The court said it “cannot conduct a comparative study of the various methods of distribution of natural resources and suggest the most efficacious mode... It respects the mandate and wisdom of the executive for such matters”.

There are caveats: “We may, however, add that the court can test the legality and constitutionality of these methods. When questioned, the courts are entitled to analyse the legal validity of different means.”

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First Published: Fri, September 28 2012. 00:55 IST