Recommendation of auction was simply a conclusion made at first blush over its attractiveness, says Bench

The Supreme Court on Thursday held that the Presidential Reference in the 2G case would be maintainable as long as its decision on allocation of spectrum licences was untouched.

A Constitution Bench headed by Chief Justice S.H. Kapadia said: “What has been enunciated in the 2G case as a proposition of law cannot strike at the root of the maintainability of the Reference. Consequently, we reject the preliminary objection and hold that this Reference is maintainable.”

Appearing for the Centre for Public Interest Litigation, senior counsel Soli Sorabjee, Shanti Bhushan and Prashant Bhushan had argued that the Reference would amount to overruling the 2G judgment.

After a thorough analysis of the verdict, the Bench said: “The recommendation of auction for alienation of natural resources was never intended to be taken as an absolute or blanket statement applicable across all resources, but [was] simply a conclusion made at first blush over the attractiveness of a method like auction. The choice of the word ‘perhaps’ suggests that the learned judges considered situations requiring a method other than auction as conceivable and desirable.”

“Moreover, if the judgment is to be read as holding auction as the only permissible means of disposal of all natural resources, it would lead to the quashing of a large number of laws that prescribe methods other than auction, e.g., the MMRD Act.”

On Janata Party president Subramanian Swamy’s submission that the Reference was an unnecessary exercise as the government had accepted the Chawla Committee recommendations that all natural resources be auctioned, the court said “since it [panel report] is pending acceptance by the government, it would be inappropriate for us to place judicial reliance on it.”

The Bench said the state’s 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. It should conform to the norms which are rational, informed by reasons and guided by the public interest, etc. All these principles are inherent in the fundamental conception of Article 14. Such being the constitutional intent and effect of Article 14, the question arises — can auction as a method of disposal of natural resources be declared a constitutional mandate under Article 14? We would unhesitatingly answer it in the negative since any other answer would be completely contrary to the scheme of Article 14.”

The court said: “Auctions may be the best way of maximising revenue but revenue maximisation may not always be the best way to subserve public good. Where revenue maximisation is the object of a policy, being considered qua that resource at that point of time to be the best way to subserve the common good, auction would be one of the preferable methods, though not the only method. Where revenue maximisation is not the object of a policy of distribution, the question of auction would not arise. Revenue considerations may assume secondary consideration to developmental considerations.”

On the contention that a method other than auction was likely to be abused, the Bench said: “A potential for abuse cannot be the basis for striking down a method as ultra vires the Constitution. It is the actual abuse itself that must be brought before the court for being tested on the anvil of constitutional provisions. In fact, it may be said that even auction has a potential for abuse, like any other method of allocation, but that cannot be the basis of declaring it an unconstitutional methodology either.

Welcoming the judgment, Attorney-General G.E. Vahanvati said, “It is a well-reasoned opinion as it has dealt with several issues head-on. Many uncertainties will be resolved.”

In his separate opinion, Justice Khehar said: “For grant of a mining lease in respect of an area containing coal, the provision leaves no room for any doubt that selection would be made through auction by competitive bidding. No process other than auction can therefore be adopted for a coal mining lease. Section 11A of the MMDR Act also defines the zone of eligibility, for participation in such competitive bidding. To be eligible, the contender must be engaged in production of iron and steel, or generation of power, or washing of coal obtained from a mine, or an activity notified by the Central government. Only those satisfying the legislatively prescribed zone of eligibility are permitted to compete for a coal mining lease.

“The policy of allocation of natural resources for public good can be defined by the legislature. Likewise, the policy for allocation of natural resources may also be determined by the executive. The parameters for determining the legality and constitutionality of the two are exactly the same. There can be no doubt about the conclusion recorded in the ‘main opinion’ [of the Constitution Bench] that auction which is just one of the several price recovery mechanisms, cannot be held to be the only constitutionally recognised method for alienation of natural resources. That should not be understood to mean that it can never be a valid method for disposal of natural resources. No part of the natural resource can be dissipated as a matter of largesse, 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.”

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