29.9.12

SC on natural resources' allocation


The Supreme Court has said auction could not be the sole method for allocation of natural resources.
A constitution bench held that auction could be one among several methods for distribution of natural resources, and it was for the government to choose the mode that best served the “common good”. It said it would not interfere with the executive’s prerogative to select the means for distribution of such resources unless it was found to fail the twin tests of “fairness and non-arbitrariness” in the light of Article 14 of the Constitution.
The opinion, celebrated by the Centre as a vindication of its decision not to auction 2G spectrum or coal blocks, came in response to a presidential reference seeking to know if the SC’s order in the 2G case made it mandatory for the allocation of all natural resources only through auction. The bench of Chief Justice S H Kapadia and Justices D K Jain, J S Khehar, Dipak Misra and Ranjan Gogoi said the 2G order was not meant to be an “auction only” order for allocation of natural resources other than spectrum. Auction too can be abused, says SC
The recommendation of auction for alienation of natural resources was never intended to be taken as an absolute or blanket statement applicable across all natural resources, but simply a conclusion made at first blush over the attractiveness of a method like auction in disposal of natural resources,” the bench said.
The court did hold that auction should be the preferred mode in case the objective of allocation of natural resources was revenue maximization. However, it should not take away from the relief in government circles. The UPA leadership has defended its decision not to invite competitive bids on the ground that it was guided by considerations other than revenue maximization—cheap telephony in the case of 2G spectrum and cheap power and infrastructure in Coalgate.


There also, the court said holding auctions could sometimes be contrary to economic logic as “very often, exploration and exploitation contracts are bundled together due to requirement of heavy capital in the discovery of natural resources”. It further said the auction method was also susceptible to abuse as it could be manipulated through cartelization. The SC said more than the method itself, it was the manner in which it was implemented that counted. “Therefore, potential abuse cannot be the basis for striking down a method as unconstitutional. It is the actual abuse itself that must be brought before the court for being tested on the anvils of constitutional provisions,” it said.
The court did not get into the question of what could be the best method of allocation for natural resources, saying the judges were not experts. However, it warned that the higher courts were free to test a policy decision on allocation of natural resources on the touchstone of Article 14 of the Constitution and strike it down if it failed to meet the twin criteria of fairness and non-arbitrariness.
In the 2G case, the court had scrapped spectrum licences given by the telecom ministry under A Raja on the ground that they were distributed in a tainted manner. The court directed the government to allocate spectrum afresh by holding auctions, leading the government to seek clarification through the presidential reference.
The bench said the court, in its 2G judgment, could not have mandated auction as the only route for the simple reason that there were a plethora of laws prescribing numerous methods of allocation for natural resources, which had been in the past held to be valid by the apex court. “If the (2G) 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, for example Mines and Mineral (Development and Regulation) Act,” the bench said accepting attorney general G E Vahanvati’s arguments on behalf of the Centre.
After clarifying that the 2G judgment did not direct the government to adopt auction as the sole method for allocation of natural resources, the court examined whether the Constitution mandated such a method as the best possible way of distribution of natural resources as per Article 39(b), which provided that “ownership and control of natural resources should be so distributed so as to best subserve the common good”.
The SC bench said, “Economic logic establishes that alienation/allocation of natural resources to the highest bidder may not necessarily be the only way to sub-serve the common good, and at times, may run counter to public good. Hence, it needs little emphasis that disposal of all natural resources through auctions is clearly not a constitutional mandate.”
Referring to a plethora of Supreme Court judgments which legitimized allocation of natural resources other than auction, the bench said, “It is manifest that there is no constitutional mandate in favour of auction under Article 14. The government has repeatedly deviated from the course of auction and this court has repeatedly upheld such actions.

From Gloom to Glee

Seldom has in the history of judiciary a single case like the 2G scam has been the cause for such despair and delight for the ruling party in the Supreme Court.
The transformation of mood in the corridors of power within a brief span of seven months — between February and September, 2012 — was painful, pyrrhic yet meaningful.
The hammer fell straight and hard on the UPA government, when on February 2 a two-judge SC bench headed by Justice G S Singhvi cancelled the 122 spectrum licences ruling that these were arbitrarily allocated to cellphone service providers during A Raja’s tenure as telecom minister.
Worse, the bench’s judgment tested the government’s nerves when it said auction was the best and only route for allocation of natural resources to weed out possible mischief of corruption and favouritism.
The February 2 judgment sent out two messages. First, the PM’s annoyance over the manner of allocation of spectrum did not deter a minister from doing what he wanted. Second, the executive needed to scrap a whole range of statutorily provided allotment process it had traditionally and historically been using for distribution of scarce natural resources.
The legal brains among the Cabinet knew that the SC could not have intended to extend its auction mandate from the tainted spectrum licences to other natural resources. But, the multiplicity of scams had robbed the government off its moral fibre to work out a studied strategy to counter the perceived “auction only” mandate.
The government hurriedly filed a petition seeking review of the 2G judgment. But as is the norm, the review petition came up for hearing before a bench headed by Justice Singhvi, who said the court understood the anxiety of the executive on issues relating to mining and other natural resources but wanted to know whether the Centre was serious to seek review of the direction to auction cancelled spectrum licenses.
The government blinked as the India Against Corruption (IAC) agitation was at its peak and gave an undertaking to implement court’s direction for auction of spectrum licences in letter and spirit. Later, the Centre withdrew the review petition finding it to be a procedural impediment in approaching the court to seek comprehensive review of the 2G judgment through Presidential Reference.
The President, under Article 143 of the Constitution, raised a doubt whether there was a direction by the apex court in 2G judgment for auction of all natural resources and if so, whether it resulted in intruding into the executive’s exclusive domain for formulation of policies.
The reference served two purposes. First, the issue shifted from the two-Judge bench to a five-Judge constitution bench, which did not include the Judges who had rendered the 2G judgment. Second, it gave a fresh opportunity to the government to explain in detail the pitfalls of “auction only” route for all natural resources.
When the arguments were going on and the way the five-Judge bench was questioning, it appeared to be a tough call which was the court would answer the President’s doubt. But, as it happened, on September 27 the constitution bench not only accepted every argument of Attorney General G E Vahanvati, but also importantly said that the 2G bench did not direct “auction only” route for all natural resources.
A“didn’t-I-tell-you-so” high fives went up in the circles of Cabinet ministers, who had braved a lot of criticism to suggest the Presidential Reference route for emerging out of the 2G abyss.
The success typically erases the past follies and generates a confidence, which the government is experiencing. So much so that, it says except for the 122 spectrum licences, which had to be auctioned as per the mandate of the 2G judgment, there is nothing to bind the government to the auction route for future allocations of spectrum, be it 3G or 4G.


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