2012 (10) TMI 596 - SC - Indian Laws

State must obtain full value when disposing natural resources, cannot transfer wealth unfairly to private parties under Article 39(b)

The SC held that auctions are not the only constitutionally permissible method for disposing of natural resources. The State must endeavor to obtain full ... Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions - Cellular Mobile Telephone Services Licenses - fixed licence fee for initial three years and subsequently based on number of subscribers subject to minimum commitment mentioned in the tender document and licence agreement - Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances, is by the conduct of auctions? Held that:- the answer could be in the affirmative, as well as, in the negative. It has been held, where the Sate is simply selling a product, there can be no doubt that the State must endeavour to obtain the highest price, subject of course to any other overriding public consideration. The validity of a trading agreement executed by the Government has to be judged by the test, that the entire benefit arising therefrom enures to the State, and is not used as a cloak for conferring private benefits on a limited class of persons. If a contract has been entered into, taking in account the interest of the State and the public, the same would not be interfered with by a Court, by assuming the position of an appellate authority. The endeavour to get the State the 'full value' of its resources, it has been held, is particularly pronounced in the sale of State owned natural resources, to the private sector. Whenever the State gets less than the full value of the assets, it has been inferred, that the country has been cheated, in a much as, it amounts to a simple transfer of wealth, from the citizens as a whole, to whoever gets the assets at a discount. The mandate contained in the Article 39 (b) of the Constitution of India that all material resources ought to be distributed in a manner which would 'best subserve the common good'. It is therefore apparent, that governmental policy for distribution of such resources should be devised by keeping in mind the 'common good' of the community i.e., the citizens of this country. It has been expressed in the 'main opinion', that matters of policy fall within the realm of the legislature or the executive, and cannot be interfered with, unless the policy is in violation of statutory law, or is ultra vires the provision(s) of the Constitution of India. It is not within the scope of judicial review for a Court to suggest an alternative policy, which in the wisdom of the Court could be better suited in the circumstances of a case. Thus far the position is clearly unambiguous. 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 the 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. For the sake of fairness, and to avoid arbitrariness, the provision contemplates, that the highest bidder amongst those who participate in the process of competitive bidding, would succeed in obtaining the concerned coal mining lease. The legislative policy limiting the zone of consideration could be subject matter of judicial review. It could be assailed, in case of violation of a legal or constitutional provision. In the aforesaid view of the matter, there can be no doubt about the conclusion recorded in the 'main opinion' that auction which is just one of the several price recovery mechanisms, cannot be held to be the only constitutionally recognized 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. Thus concluding that no part of the natural resource can be dissipated as a matter of largess, 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. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable. Issues Involved:1. Whether auction is the only permissible method for disposal of all natural resources.2. Scope of judicial review in policy making by the Government, including methods for disposal of natural resources.3. Validity of methods other than auction for disposal of natural resources.4. Impact of the judgment in the 2G Case on the allocation of natural resources.5. Whether the judgment in the 2G Case should be given retrospective effect.Issue-wise Analysis:1. Whether auction is the only permissible method for disposal of all natural resources:The Court concluded that auction is not a constitutional mandate for the disposal of all natural resources. The Court emphasized that the State must adopt a fair, reasonable, non-discriminatory, and transparent method for the distribution of natural resources. It was held that while auction is a preferable method for maximizing revenue, it is not the only method permissible under Article 14 of the Constitution. The Court noted that the choice of method depends on the specific circumstances and the objective of the policy, which may include social or welfare purposes.2. Scope of judicial review in policy making by the Government, including methods for disposal of natural resources:The Court reiterated that policy decisions, especially those related to economic matters, fall within the realm of the executive and legislative branches and are generally not subject to judicial review unless they violate statutory or constitutional provisions. The Court can, however, test the legality and constitutionality of these methods. It was emphasized that the judiciary cannot mandate a specific method for the disposal of natural resources but can strike down policies that are arbitrary, unreasonable, or discriminatory.3. Validity of methods other than auction for disposal of natural resources:The Court held that methods other than auction, such as allocation based on competitive bidding or other transparent and objective criteria, are valid as long as they meet the requirements of fairness, reasonableness, and non-arbitrariness. The Court highlighted that the choice of method should be guided by the objective of subserving the common good and public interest. The Court provided examples where methods other than auction were upheld, such as in cases involving the promotion of domestic industries or incentivizing investments in backward regions.4. Impact of the judgment in the 2G Case on the allocation of natural resources:The Court clarified that the judgment in the 2G Case, which mandated auction for the allocation of spectrum, does not imply that auction is the only permissible method for all natural resources. The Court noted that the observations in the 2G Case were specific to the allocation of spectrum and should not be generalized to all natural resources. The Court emphasized that the principles laid down in the 2G Case should be understood in the context of the specific facts and circumstances of that case.5. Whether the judgment in the 2G Case should be given retrospective effect:The Court did not provide a direct answer to this question, as it was not necessary for the resolution of the main issues in the Reference. The Court focused on clarifying the principles regarding the disposal of natural resources and the scope of judicial review, rather than addressing the retrospective application of the 2G Case judgment.Conclusion:The Court concluded that auctions are not the only permissible method for the disposal of natural resources. The choice of method should be guided by the principles of fairness, reasonableness, non-arbitrariness, and transparency, with the objective of subserving the common good and public interest. The Court emphasized the limited scope of judicial review in policy matters and clarified that the observations in the 2G Case should not be generalized to all natural resources.