Alienation of natural resources: Whose prerogative is it anyway?

At the same time, the SC retains the power to pronounce justice in cases of alleged violation of policy norms that ends up in litigation.

In February 2012, the Supreme Court of India (the “SC”) in the case of Centre for Public Interest Litigation & Ors. V. Union of India & Ors. [(2012) 3 SCC 1] (“2G case”) opined that alienation of public property and natural resources may be disposed of only by way of public auction and all other routes for award of contracts and licences, such as first come first served basis, were illegal.

On April 12, 2012, the President of India made a reference (“Reference”) to the SC on the issue of allocation of natural resources by the Executive in India. The most pertinent issue raised in the Reference was whether in future, the auction process was the only process by way of which the Executive can allocate other natural resources in India or can other routes be followed.

On September 27, 2012, a Constitution Bench of the SC pronounced its opinion on the issues raised in the Reference. The SC opined that public auction is not the only procedure by way of which natural resources may be allocated by the Executive. It has been further specified that the procedure for allocation of natural resources may differ depending on the resource being allocated. It was clarified that the Constitution of India (the “Constitution”) does not mandate that public auction is the fair procedure for allocation of resources.

The judgement also clarified that the 2G case does not deal with the modes of allocation of natural resources, other than spectrum. Hence the opinion laid down in the 2G case specifying that the public auction process is the only fair method of allocation of natural resources is not conclusive. Further, the SC held that the allocation of natural resources is an executive action and as such, executive policy decisions are not open to judicial review, unless the policies are contrary to statutory or constitutional provisions or arbitrary or irrational or translate into abuse of power.

Key Concerns

Conclusiveness of the 2G case: The 2G case elicited doubts about the validity of methods other than public auction for allocation/disposal of natural resources by the Executive. The Reference has clarified that the opinion in the 2G case specifically in paragraphs 94 to 96 of the 2G case, is not a proposition of law. The 2G case has only dealt with the issue of allocation of spectrum by way of public auction.

The 2G case specified that “In our view, a duly publicized auction conducted fairly and impartially is perhaps the best method for discharging this burden and methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people, who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values.” The SC has now opined that the use of the term “perhaps” indicates that this statement is not to be used as an absolute or blanket statement and other routes for allocation of natural resources can be contemplated. Further, the SC held that if the opinion laid in the 2G case was held to be a conclusive proposition of law, it will result in declaration of a number of statutes which prescribe other means of allocation of natural resources as invalid.

Hence, the opinion laid in the 2G case specifying that public auction is the only constitutional method for allocation of resources cannot be held to be “law declared”. “Public auction” is not the constitutional mandate: The SC in its opinion on the issues raised in the Reference have discussed whether Article 14 read with Article 39(b) of the Constitution mandate that public auction is the only method of allocation of natural resources. Article 14 of the Constitution secures to all persons in India, the equality of status and opportunity. The SC held that it is clear that the procedure for allocation of natural resources by the Executive is to be tested on the touchstone of Article 14 of the Constitution.

Article 14 mandates that executive action has to be fair, reasonable, non-discriminatory, transparent, and must be in pursuance of equitable treatment. However, Article 14 of the Constitution, in relation to the State/Executive only implies negative rights. Thus, reading the mandate of auction into Article 14 will be contrary to the intent of the Article 14. Further, a constitutional mandate must be applicable to all situations. However, it is pertinent to note that the adoption of the same procedure for allocation of natural resources may not be in the best interests of the public and in fact, may lead to vitiating the best interest of the public.

Auction cannot be held as a constitutional mandate also because of the constitutional principle embodied in Article 39(b) of the Constitution. Article 39(b) of the Constitution mandates that “the State shall direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.” Hence, this Article 39(b) of the Constitution merely imposes a restriction on the object of distribution and not the means of distribution of natural resources. Public auction may hence, only be one of the procedures for distribution of natural resources and being so, it must preserve the object of Article 39(b) of the Constitution.

The methodology of distribution is not a constitutional mandate, only the object is.

Further the SC observed that mandatory auctions may not imply sound economic logic. Exploration and exploitation contracts are bundled together normally and involve huge investment costs and use of machinery. It is unlikely that any investor would invest huge amounts in exploration and then compete in an open auction to undertake exploitation of the same resource. The scope for potential abuse does not per se render the procedure set forth by the Executive as illegal.

Judicial review of policy decisions: A policy may not be struck down as ultra vires merely because it has potential for arbitrary use or (cause) abuse of power. The SC held that policy decisions by the Executive on alienation of natural resources are executive prerogatives and are open to judicial scrutiny only if they are in breach of the Constitution or any statute, or are arbitrary or irrational or involve an abuse of power and are anti-competitive and fail to maximize revenue.

Conclusion

The SC opinion on the Reference has finally clarified that constitutionally public auction is not the only means of distribution of natural resources. The Constitution merely guides the State to comply with the object of preserving the common good and must ensure that the procedure is in keeping with the best interest of public. Also, the order has clarified that policy decisions of the State have limited scope of judicial interference.

More importantly, the SC has, by holding that the Executive has the power to make policies on alienation of natural resources, implied that it had been an instance of implicit overreach by the SC in appropriating executive powers by laying down the process of alienation. However the SC has also retained the power to pronounce justice in the case of the alleged violation of policy norms that end up in litigation.

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