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Updated: July 19, 2012 03:07 IST

2G judgment vague, will hurt foreign investment, AG argues before court

J. Venkatesan
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Investment climate plea may not hold good for maintainability of Presidential Reference, says CJI Kapadia

The ‘2G spectrum judgment’ has created confusion in the minds of foreign investors and made India a laughing stock internationally, Attorney-General G. E. Vahanvati asserted in the Supreme Court on Tuesday.

He made this submission before a Constitution Bench of Chief Justice S. H. Kapadia and Justices D. K. Jain, J. S. Khehar, Dipak Misra and Ranjan Gogoi, hearing the Presidential Reference on the 2G judgment.

“Why can’t this point be raised in the review petition?” the CJI asked the AG. “Investment argument may not hold good.”

The AG said, “The present Reference does not seek to overturn the operative directions contained in the judgment.”

“The problem with the auction rule,” he said, “was with regard to foreign investment. Any foreigner seeking to invest in India will get an opinion that it is not safe to invest in India as auction is the only way of disposing of resources — that if resources are handed out in any other way, they will land in trouble. India will become a laughing stock internationally. What we are saying is the judgment is vague and it will affect investment. We have to go by what is the position regarding foreign investment climate. [U.S.] President Obama has also spoken about the foreign investment climate in the country.”

Justice Kapadia, however, told the AG, “The investment climate argument may not hold good for maintainability.”

The AG said: “It is to be noted that the Public Trust doctrine was not the subject matter of any discussion in court and its extension [in the 2G judgment] to all natural resources and the principle that all natural resources can be disposed of only by auction will have serious impact on FDI into the country.”

“Clarify law”

Rejecting the argument that the Reference was not maintainable, the AG said: “All that is sought to be done by way of the present Reference is to request this court to clarify the law and give an advisory opinion on the substantial questions of law, whether all natural resources must necessarily be disposed of by way of auction.”

He said: “It cannot be said that without hearing the Reference, it is not maintainable. Undoubtedly, the questions which have been formulated are of great constitutional importance and will impact the development of this country. It cannot be disputed that the questions raised have arisen and are likely to arise, because whenever the government adopts a method for disposal of any natural resource by a method that does not entail maximisation of revenue, the methodology is likely to be challenged on the ground that it runs contrary to the directions contained in para 96 of the judgment. There are important questions of far-reaching public importance that require clarification by this court. Any kind of uncertainty in the law in this regard is bound to destabilise the economy and adversely affect Foreign Direct Investment.”

Appearing for the Federation of Indian Mineral Industries (FIMI), senior counsel T. R. Andhyarujina supported the Reference. “FIMI is particularly concerned in this Reference as the judgment in para 94 condemned the first come, first served policy in [allocation of ] public resources as having inherently dangerous implications, and prescribed auction as a general proposition of law. This is directly contrary to the existing provisions of Sections 1 and 11 of the Mines and Minerals (Development & Regulation) Act, 1957.”

Counsel said: “The judgment, in laying down a universal prescription applicable to all natural resources or public assets and ignoring the statutory provisions like the MMDR Act, 1957, is per incuriam [a decision which a subsequent court finds to be a mistake, and therefore not a binding precedent]. Its propositions regarding the requirement of the state’s duty to adopt a method of auction is applicable as law only to the natural resource under consideration, viz., spectrum.”

He said: “This court could not have a judicially settled policy for all times in the matter of disposal of natural resources in the manner in which it has done in paras 94 to 95 of the judgment. The government policies cannot be fettered by only one method of disposal, viz., to the highest bidder. This would be against the national interest.”

“Nothing final in verdict”

Appearing for the Confederation of Indian Industry, senior counsel Hairsh Salve said that beyond cancelling 122 licences, there was nothing final in the judgment. “Tomorrow the next government can say even the decision on spectrum is not final and seek a reference.”

When Justice Jain wanted to know whether it would not add to confusion, Mr. Salve said, “What is important is the ratio of the judgment cannot be touched in the Reference.”

Arguments will continue on Wednesday.

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It will be "safe" to invest in India only after corruption is removed. But investors do not wait for that to happen. Yes, "safety" brings in one kind of investor, "risks" with high returns bring in another kind of investor! Look at those with high risk appetite. Many of these players know how to deal with a country like India where corruption is part of the business. They can easily "factor in" the extra cost of corruption (10 to 20%) and jump in to look for the opportunity. I think India has no choice to say "no" !

from:  Kumar
Posted on: Jul 18, 2012 at 08:43 IST

The Attorney general in his statement before the Supreme court has quoted President Obama's remarks about our country's slow progress in economic reforms adding that we will be "making a laughing stock" if auction is the only route for allotment of natural resources. To this the Commerce minister has rebutted saying "Policy making or taking decision was the sovereign right of the country. In this context the A.G.'s remark is highly objectionable to say the least. In the light of the huge loss incurred on account of the 2G spectrum scandal which went to fill in the coffers of the selfish politicians holding power with corresponding loss to the state exchequer, the Supreme Court has in their wisdom decided that auction alone should be the criteria in respect of distribution of natural resources. The suggestion by the AG that preference to those with expertise like petroleum etc may be the criteria is anther ploy for the entry of chosen favourites into the field and should be resisted.

from:  T.S. Sreenivasan
Posted on: Jul 18, 2012 at 02:13 IST

The AG has to argue like this as he is appointed by Central Govt. But Judges are not
fools. There is distinction between allowing FDI in retail and auctioning of rare
resources

from:  Subbumahalingam Ramani
Posted on: Jul 18, 2012 at 02:04 IST

The AG should remember the highest court in the country is for the benefit of the country and its citizens and not any foreign institution.Foreign investments are needed but that is not the only solution for all the problems.If AG decides to bat for the American president and Corruption he better clearly state it in public.Why is AG not quoting TIME magazine's ignominy list where Mr Raja is in podium position finishing 2nd.Richard Nixon who is at 1st position is an former American President.So do we really have to go by what American President say.Further, Today's mess in financial industry is birth child of President Nixon by moving away from Gold Standard which paved the way for Credit Default Swaps and other stock market manipulation including LIBOR because of the existence of FIAT currency."The American Dollar" is the reason why we are paying too much for our oil imports.Let us not get carried away by the American propaganda,this will only take India backwards "East India Company"

from:  Vijay
Posted on: Jul 18, 2012 at 01:44 IST

It is sad that we have to invoke what Obama said for his political compulsions back home and who is legislating to prevent open environment in the IT sector. We should do what is in our country's interest just as he is doing. Of course if this UPA govirnment wants to go as banana republic, let them ligislate in Parliament and go ahead.

from:  MVJRao
Posted on: Jul 17, 2012 at 23:30 IST

there is absolutely no problem in auctioning of natural resources.... in
a country where laws are meant to be violated and decisions at top level
are taken to protect their kins, and interests. Auctioning would mean
that law of the land prevails. To a some extent our resources would be
protected, or else our hills and rocks , tribal , fishing community
everything would be destroyed by the want for more growth and FDIs. The
policy of the govt should be for more involvement of people of this
country and try to protect us and not to destroy.

from:  P. Rajarathanam
Posted on: Jul 17, 2012 at 23:23 IST

I have not heard of any public works that is not auctioned in US. Indians should use common sense and not rely on Obama's comments alone to set course.

from:  ViVi Jain
Posted on: Jul 17, 2012 at 22:47 IST
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