“Apart from being impractical in certain situations, it can also be counter-productive”

Auction alone cannot be insisted upon for disposal of all types of natural resources, Attorney General (AG) G.E. Vahanvati asserted in the Supreme Court on Thursday.

Such an approach mandated in the 2G judgment, apart from being impractical in certain situations, can be counter-productive and can impact planned and coordinated growth and economy of the country, the AG told a five-judge Constitution Bench comprising Chief Justice S.H. Kapadia and Justices D.K. Jain, J.S. Khehar, Dipak Misra and Ranjan Gogoi.

Arguing on the Presidential Reference on the 2G judgment, Mr. Vahanvati said, “While disposing of land and property, if the aim is to secure the best possible price, auctions may be the route. However, revenue generation cannot be the sole consideration in the matter of allocation of natural resources. There are complex policy and developmental issues which may have to be kept in mind in the larger perspective of national development.”

He said the touchstone of any policy of distribution of natural resources was whether it would serve the common good and “if it does, such a policy is clearly in accordance with the constitutional principle enshrined in Article 39 (b).”

“One concern with the auction method is whether it can be expected to work in cases where the asset is of uncertain value -- such as mineral deposits. In these cases, there is lack of hard information on which to sensibly base a bid. Further, there is the risk of collusive bidding, cartelisation and ganging up. There is also the aspect of earlier-mover advantage.”

The AG said the direction in the 2G judgment that all natural resources must be auctioned led to confusion and needed to be clarified by this court. “Further the broad proposition in Para 61 (of the 2G judgment) treating all natural resources as public properties is unjustified. Further, in Para 65 there is an extension which is completely unjustified and unwarranted.”

He said disposal/distribution had to be made in accordance with the sector-specific requirements. The method of distribution would have to take into account the nature of the resource and the economic policy underlying its effective utilisation.

“The issue that arises in the present Reference is with regard to transfer or alienation of natural resources and the method that can be resorted to for such transfer or alienation. The appropriate method for dealing with or alienating a resource would be to take into consideration the nature of the resource, its content, utility, end-use and its economic potential, as well as the ultimate usefulness of such resource for the community or society at large. The appropriate method for allocation of a resource depends upon the nature, content, utility, and economic potential of the natural resource, and in certain cases, sector-specific needs.

Arguments will continue on July 24.

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