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The policy of allocation of natural resources for public good can be defined by the legislature, as has been discussed in the foregoing paragraphs. Likewise, 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. 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 (refer to paragraphs 10 to 12 of my instant opinion). I would therefore conclude by stating 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.NOW THEREFORE, in exercise of powers conferred upon me by clause (1) of Article 143 of the Constitution of India, I, Pratibha Devisingh Patil, President of India, hereby refer the following questions to the Supreme Court of India for consideration and report thereon, namely: Q.1 Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions? Q.2 Whether a broad proposition of law that only the route of auctions can be resorted to for disposal of natural resources does not run contrary to several judgments of the Supreme Court including those of Larger Benches? Q.3 Whether the enunciation of a broad principle, even though expressed as a matter of constitutional law, does not really amount to formulation of a policy and has the effect of unsettling policy decisions formulated and approaches taken by various successive governments over the years for valid considerations, including lack of public resources and the need to resort to innovative and different approaches for the development of various sectors of the economy? Q.4 What is the permissible scope for interference by courts with policy making by the Government including methods for disposal of natural resources? Q.5 Whether, if the court holds, within the permissible scope of judicial review, that a policy is flawed, is the court not obliged to take into account investments made under the said policy including investments made by foreign investors under multilateral/bilateral agreements? Q.6 If the answers to the aforesaid questions lead to an affirmation of the judgment dated 02.02.2012 then the following questions may arise, viz. (i) whether the judgment is required to be given retrospective effect so as to unsettle all licences issued and 2G spectrum (800, 900, and 1800 MHz bands) allocated in and after 1994 and prior to 10.01.2008? (ii) whether the allocation of 2G spectrum in all circumstances and in all specific cases for different policy considerations would nevertheless have to be undone? And specifically iii) Whether the telecom licences granted in 1994 would be affected? iv) Whether the Telecom licences granted by way of basic licences in 2001 and licences granted between the period 2003-2007 would be affected? v) Whether it is open to the Government of India to take any action to alter the terms of any licence to ensure a level playing field among all existing licensees? vi) Whether dual technology licences granted in 2007 and 2008 would be affected? vii) Whether it is necessary or obligatory for the Government of India to withdraw the Spectrum allocated to all existing licensees or to charge for the same with retrospective effect and if so on what basis and from what date? Q.7 Whether, while taking action for conduct of auction in accordance with the orders of the Supreme Court, it would remain permissible for the Government to: (i) Make provision for allotment of Spectrum from time to time at the auction discovered price and in accordance with laid down criteria during the period of validity of the auction determined price? (ii) Impose a ceiling on the acquisition of Spectrum with the aim of avoiding the emergence of dominance in the market by any licensee/applicant duly taking into consideration TRAI recommendations in this regard? iii) Make provision for allocation of Spectrum at auction related prices in accordance with laid down criteria in bands where there may be inadequate or no competition (for e.g. there is expected to be a low level of competition for CDMA in 800 MHz band and TRAI has recommended an equivalence ratio of 1.5 or 1.3X1.5 for 800 MHz and 900 MHz bands depending upon the quantum of spectrum held by the licensee that can be applied to auction price in 1800 MHz band in the absence of a specific price for these bands)? Q.8 What is the effect of the judgment on 3G Spectrum acquired by entities by auction whose licences have been quashed by the said judgment? NEW DELHI; DATED: 12 April 2012 PRESIDENT OF INDIA”

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REPORTABLE

IN THE SUPREME COURT OF INDIA

ADVISORY JURISDICTION

RE: SPECIAL REFERENCE NO.1 OF 2012
[Under Article 143(1) of the Constitution of India]

 

O P I N I O N

 

D.K. JAIN, J. [FOR S.H. KAPADIA, CJ, HIMSELF,
DIPAK MISRA & RANJAN GOGOI, JJ.]

 
In exercise of powers conferred under Article 143(1) of the
Constitution of India, the President of India has on 12th April, 2012, made
the present Reference. The full text of the Reference (sans the annexures)
is as follows:
“WHEREAS in 1994, the Department of Telecommunication, Government
of India (“GOI”), issued 8 Cellular Mobile Telephone Services Licenses
(“CMTS Licenses”), 2 in each of the four Metro cities of Delhi,
Mumbai, Kolkata and Chennai for a period of 10 years (the “1994
Licenses”). The 1994 licensees were selected based on rankings
achieved by them on the technical and financial evaluation based on
parameters set out by the GoI in the tender and were required to pay a
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. The 1994 Licenses issued by
GoI mentioned that a cumulative maximum of upto 4.5 MHz in the 900 MHz
bands would be permitted based on appropriate justification. There
was no separate upfront charge for the allocation of Spectrum to the
licensees, who only paid annual Spectrum usage charges, which will be
subject to revision from time to time and which under the terms of the
license bore the nomenclature “licence fee and royalty”. A copy of
the 1994 Licenses, along with a table setting out the pre-determined
Licence Fee as prescribed by DoT in the Tender, is annexed hereto as
Annexure I (Colly).

WHEREAS in December 1995, 34 CMTS Licenses were granted based on
auction for 18 telecommunication circles for a period of 10 years (the
“1995 Licenses”). The 1995 Licenses mentioned that a cumulative
maximum of up to 4.4 MHz in the 900 MHz bands shall be permitted to
the licensees, based on appropriate justification. There was no
separate upfront charge for allocation of spectrum to the licensees
who were also required to pay annual spectrum usage charges, which
under the terms of the license bore the nomenclature “licence fee and
royalty” which will be subject to revision from time to time. A copy
of the 1995 Licenses, along with a table setting out the fees payable
by the highest bidder, is annexed hereto as Annexure II (Colly).

WHEREAS in 1995, bids were also invited for basic telephone
service licenses (“BTS Licenses”) with the license fee payable for a
15 year period. Under the terms of the BTS Licenses, a licensee could
provide fixed line basic telephone services as well as wireless basic
telephone services. Six licenses were granted in the year 1997-98 by
way of auction through tender for providing basic telecom services
(the “1997 BTS Licenses”). The license terms, inter-alia, provided
that based on the availability of the equipment for Wireless in Local
Loop (WLL), in the world market, the spectrum in bands specified
therein would be considered for allocation subject to the conditions
mentioned therein. There was no separate upfront charge for
allocation of spectrum and the licensees offering the basic wireless
telephone service were required to pay annual Spectrum usage charges,
which under the terms of the license bore the nomenclature “licence
fee and royalty”. A sample copy of the 1997 BTS Licenses containing
the table setting out the license fees paid by the highest bidder is
annexed hereto as Annexure III (Colly).

WHEREAS in 1997, the Telecom Regulatory Authority of India Act,
1997 was enacted and the Telecom Regulatory Authority of India (the
“TRAI”) was established.

WHEREAS on 1st April, 1999, the New Telecom Policy 1999 (“NTP
1999”) was brought into effect on the recommendation of a Group on
Telecom (“GoT”) which had been constituted by GoI. A copy of NTP 1999
is annexed hereto as Annexure IV. NTP 1999 provided that Cellular
Mobile Service Providers (“CMSP”) would be granted a license for a
period of 20 years on the payment of a one-time entry fee and licence
fee in the form of revenue share. NTP 1999 also provided that BTS
(Fixed Service Provider or FSP) Licenses for providing both fixed and
wireless (WLL) services would also be issued for a period of 20 years
on payment of a one-time entry fee and licence fee in the form of
revenue share and prescribed charges for spectrum usage, appropriate
level of which was to be recommended by TRAI. The licensees both
cellular and basic were also required to pay annual Spectrum usage
charges.

WHEREAS based on NTP 1999, a migration package for migration from
fixed license fee to one time entry fee and licence fee based on
revenue share regime was offered to all the existing licenses on 22nd
July, 1999. This came into effect on 1st August 1999. Under the
migration package, the licence period for all the CMTS and FSP
licensees was extended to 20 years from the date of issuance of the
Licenses.

WHEREAS in 1997 and 2000, CMTS Licenses were also granted in 2
and 21 Circles to Mahanagar Telephone Nigam Limited (“MTNL”) and
Bharat Sanchar Nigam Limited (“BSNL”) respectively (the “PSU
Licenses”). However, no entry fee was charged for the PSU Licenses.
The CMTS Licenses issued to BSNL and MTNL mentioned that they would be
granted GSM Spectrum of 4.4 + 4.4 MHz in the 900 MHz band. The PSU
Licensees were also required to pay annual spectrum usage charges. A
copy of the PSU Licenses is annexed hereto as Annexure V (Colly).

WHEREAS in January 2001, based on TRAI’s recommendation, DoT
issued guidelines for issuing CMTS Licenses for the 4th Cellular
Operator based on tendering process structured as “Multistage Informed
Ascending Bidding Process”. Based on a tender, 17 new CMTS Licenses
were issued for a period of 20 years in the 4 Metro cities and 13
Telecom Circles (the “2001 Cellular Licenses”). The 2001 Licenses
required that the licensees pay a one-time non refundable entry fee as
determined through auction as above and also annual license fee and
annual spectrum usage charges and there was no separate upfront charge
for allocation of spectrum. In accordance with the terms of tender
document, the license terms, inter-alia, provided that a cumulative
maximum of upto 4.4 MHz + 4.4 MHz will be permitted and further based
on usage, justification and availability, additional spectrum upto 1.8
MHz + 1.8 MHz making a total of 6.2 MHz + 6.2 MHz, may be considered
for assignment, on case by case basis, on payment of additional
Licence fee. The bandwidth upto maximum as indicated i.e. 4.4 MHz &
6.2 MHz as the case may be, will be allocated based on the Technology
requirements (e.g. CDMA @ 1.25 MHz, GSM @ 200 KHz etc.). The
frequencies assigned may not be contiguous and may not be same in all
cases, while efforts would be made to make available larger chunks to
the extent feasible. A copy of the 2001 Cellular Licenses, along with
a table setting out the fees payable by the highest bidder, is annexed
hereto as Annexure VI.

WHEREAS in 2001, BTS Licenses were also issued for providing both
fixed line and wireless basic telephone services on a continual basis
(2001 Basic Telephone Licenses). Service area wise one time Entry Fee
and annual license fee as a percentage of Adjusted Gross Revenue (AGR)
was prescribed for grant of BTS Licenses. The licence terms, inter-
alia, provided that for Wireless Access System in local area, not more
than 5 + 5 MHz in 824-844 MHz paired with 869-889 MHz band shall be
allocated to any basic service operator including existing ones on
FCFS basis. A detailed procedure for allocation of spectrum on FCFS
basis was given in Annexure-IX of the 2001 BTS license. There was no
separate upfront charge for allocation of spectrum and the Licensees
were required to pay revenue share of 2% of the AGR earned from
wireless in local loop subscribers as spectrum charges in addition to
the one time entry fee and annual license fee. A sample copy of the
2001 Basic Telephone License along with a table setting out the entry
fees is annexed hereto as Annexure VII.

WHEREAS on 27th October, 2003, TRAI recommended a Unified Access
Services Licence (“UASL”) Regime. A copy of TRAI’s recommendation is
annexed hereto as Annexure VIII.

WHEREAS on 11.11.2003, Guidelines were issued, specifying
procedure for migration of existing operators to the new UASL regime.
As per the Guidelines, all applications for new Access Services
License shall be in the category of Unified Access Services Licence.
Later, based on TRAI clarification dated 14.11.2003, the entry fee for
new Unified Licensee was fixed same as the entry fee of the 4th
cellular operator. Based on further recommendations of TRAI dated
19.11.2003, spectrum to the new licensees was to be given as per the
existing terms and conditions relating to spectrum in the respective
license agreements. A copy of the Guidelines dated 11.11.2003 is
annexed hereto as Annexure IX.

WHEREAS consequent to enhancement of FDI limit in telecom sector
from 49% to 74%, revised Guidelines for grant of UAS Licenses were
issued on 14.12.2005. These Guidelines, inter-alia stipulate that
Licenses shall be issued without any restriction on the number of
entrants for provision of Unified Access Services in a Service Area
and the applicant will be required to pay one time non-refundable
Entry, annual License fee as a percentage of Adjusted Gross Revenue
(AGR) and spectrum charges on revenue share basis. No separate
upfront charge for allocation of spectrum was prescribed. Initial
Spectrum was allotted as per UAS License conditions to the service
providers in different frequency bands, subject to availability.
Initially allocation of a cumulative maximum up to 4.4 MHz + 4.4 MHz
for TDMA based systems or 2.5 MHz + 2.5 MHz for CDMA based systems
subject to availability was to be made. Spectrum not more than 5 MHz
+ 5 MHz in respect of CDMA system or 6.2 MHz + 6.2 MHz in respect of
TDMA based system was to be allocated to any new UAS licensee. A copy
of the UASL Guidelines dated 14.12.2005 is annexed hereto as Annexure
X.

WHEREAS after the introduction of the UASL in 2003 and until March
2007, 51 new UASL Licenses were issued based on policy of First Come-
First Served, on payment of the same entry fee as was paid for the
2001 Cellular Licenses (the “2003-2007 Licenses”) and the spectrum was
also allocated based on FCFS under a separate wireless operating
license on case by case basis and subject to availability. Licensees
had to pay annual spectrum usage charges as a percentage of AGR, there
being a no upfront charge for allocation of spectrum. A copy of the
2003-2007 License, along with a table setting out the fees payable, is
annexed hereto as Annexure XI (Colly).

WHEREAS on 28th August 2007, TRAI revisited the issue of new
licenses, allocation of Spectrum, Spectrum charges, entry fees and
issued its recommendations, a copy of which is annexed hereto as
Annexure XII. TRAI made further recommendations dated 16.07.2008
which is annexed hereto as Annexure XIII.

WHEREAS in 2007 and 2008, GoI issued Dual Technology Licences,
where under the terms of the existing licenses were amended to allow
licensees to hold a license as well as Spectrum for providing services
through both GSM and CDMA network. First amendment was issued in
December, 2007. All licensees who opted for Dual Technology Licences
paid the same entry fee, which was an amount equal to the amount
prescribed as entry fee for getting a new UAS licence in the same
service area. The amendment to the license inter-alia mentioned that
initially a cumulative maximum of upto 4.4 MHz + 4.4 MHz was to be
allocated in the case of TDMA based systems (@ 200 KHz per carrier or
30 KHz per carrier) and a maximum of 2.5 MHz + 2.5 MHz was to be
allocated in the case of CDMA based systems (@ 1.25 MHz per carrier),
on case by case basis subject to availability. It was also, inter-
alia, mentioned that additional spectrum beyond the above stipulation
may also be considered for allocation after ensuring optimal and
efficient utilization of the already allocated spectrum taking into
account all types of traffic and guidelines/criteria prescribed from
time to time. However, spectrum not more than 5 + 5 MHz in respect of
CDMS system and 6.2 + 6.2 MHz in respect of TDMA based system was to
be allocated to the licensee. There was no separate upfront charge
for allocation of Spectrum. However, Dual Technology licensees were
required to pay Spectrum usage charges in addition to the license fee
on revenue share basis as a percentage of AGR. Spectrum to these
licensees was allocated 10.01.2008 onwards.

WHEREAS Subscriber based criteria for CMTS was prescribed in the
year 2002 for allocation of additional spectrum of 1.8 + 1.8 MHz
beyond 6.2 + 6.2 MHz with a levy of additional spectrum usage charge
of 1% of AGR. The allocation criteria was revised from time to time.
A copy of the DoT letter dated 01.02.2002 in this regard is annexed
hereto as Annexure XIV.

WHEREAS for the spectrum allotted beyond 6.2 MHz, in the
frequency allocation letters issued by DoT May 2008 onwards, it was
mentioned inter-alia that allotment of spectrum is subject to pricing
as determined in future by the GoI for spectrum beyond 6.2 MHz + 6.2
MHz and the outcome of Court orders. However, annual spectrum usage
charges were levied on the basis of AGR, as per the quantum of
spectrum assigned. A sample copy of the frequency allocation letter
is annexed hereto as Annexure XV.

WHEREAS Spectrum for the 3G Band (i.e. 2100 MHz band) was
auctioned in 2010. The terms of the auction stipulated that, for
successful new entrants, a fresh license agreement would be entered
into and for existing licensees who were successful in the auction,
the license agreement would be amended for use of Spectrum in the 3G
band. A copy of the Notice inviting Applications and Clarifications
thereto are annexed hereto and marked as Annexure XVI (Colly). The
terms of the amendment letter provided, inter alia, that the 3G
spectrum would stand withdrawn if the license stood terminated for any
reason. A copy of the standard form of the amendment letter is
annexed hereto and marked as Annexure XVII.

WHEREAS letters of intent were issued for 122 Licenses for
providing 2G services on or after 10 January 2008, against which
licenses (the “2008 Licenses”) were subsequently issued. However,
pursuant to the judgment of this Hon’ble Court dated 2nd February,
2012 in Writ Petition (Civil) No.423 of 2010 (the “Judgment”), the
2008 Licenses have been quashed. A copy of the judgment is annexed
hereto and marked Annexure XVIII.

WHEREAS the GoI has also filed an Interlocutory Application for
clarification of the Judgment, wherein the GoI has placed on record
the manner in which the auction is proposed to be held pursuant to the
Judgment and sought appropriate clarificatory orders/directions from
the Hon’ble Court. A copy of the Interlocutory Application is annexed
hereto and marked as Annexure XIX.

WHEREAS while the GoI is implementing the directions set out in
the Judgment at paragraph 81 and proceeding with a fresh grant of
licences and allocation of spectrum by auction, the GoI is seeking a
limited review of the Judgment to the extent it impacts generally the
method for allocation of national resources by the State. A copy of
the Review Petition is annexed hereto and marked as Annexure XX.

WHEREAS by the Judgment, this Hon’ble Court directed TRAI to
make fresh recommendations for grant of licenses and allocation of
Spectrum in the 2G band by holding an auction, as was done for the
allocation of Spectrum for the 3G licenses.

WHEREAS, in terms of the directions of this Hon’ble Court, GoI
would now be allocating Spectrum in the relevant 2G bands at prices
discovered through auction.

WHEREAS based on the recommendations of TRAI dated 11.05.2010
followed by further clarifications and recommendations, the GoI has
prescribed in February 2012, the limit for spectrum assignment in the
Metro Service Areas as 2x10MHz/2×6.25 MHz and in rest of the Service
Areas as 2x8MHz/2×5 MHz for GSM (900 MHz, 1800 MHz band)/CDMA(800 MHZ
band), respectively subject to the condition that the Licensee can
acquire additional spectrum beyond prescribed limit in the open market
should there be an auction of spectrum subject to the further
condition that total spectrum held by it does not exceed the limits
prescribed for merger of licenses i.e. 25% of the total spectrum
assigned in that Service Area by way of auction or otherwise. This
limit for CDMS spectrum is 10 MHz.

WHEREAS, in view of the fact that Spectrum may need to be
allocated to individual entities from time to time in accordance with
criteria laid down by the GoI, such as subscriber base, availability
of Spectrum in a particular circle, inter-se priority depending on
whether the Spectrum comprises the initial allocation or additional
allocation, etc., it may not always be possible to conduct an auction
for the allocation of Spectrum.

AND WHEREAS in view of the aforesaid, the auctioning of Spectrum
in the 2G bands may result in a situation where none of the Licensees,
using the 2G bands of 800 MHz., 900 MHz and 1800 MHz would have paid
any separate upfront fee for the allocation of Spectrum.

AND WHEREAS the Government of India has received various notices
from companies based in other countries, invoking bilateral investment
agreements and seeking damages against the Union of India by reason of
the cancellation/threat of cancellation of the licenses.

AND WHEREAS in the circumstance certain questions of law of far
reaching national and international implications have arisen,
including in relation to the conduct of the auction and the regulation
of the telecommunications industry in accordance with the Judgment and
FDI into this country in the telecom industry and otherwise in other
sectors.

Given that the issues which have arisen are of great public
importance, and that questions of law have arisen of public importance
and with such far reaching consequences for the development of the
country that it is expedient to obtain the opinion of the Hon’ble
Supreme Court of India thereon.

NOW THEREFORE, in exercise of powers conferred upon me by clause
(1) of Article 143 of the Constitution of India, I, Pratibha Devisingh
Patil, President of India, hereby refer the following questions to the
Supreme Court of India for consideration and report thereon, namely:

Q.1 Whether the only permissible method for disposal of all natural
resources across all sectors and in all circumstances is by the
conduct of auctions?

Q.2 Whether a broad proposition of law that only the route of auctions
can be resorted to for disposal of natural resources does not
run contrary to several judgments of the Supreme Court including
those of Larger Benches?

Q.3 Whether the enunciation of a broad principle, even though
expressed as a matter of constitutional law, does not really
amount to formulation of a policy and has the effect of
unsettling policy decisions formulated and approaches taken by
various successive governments over the years for valid
considerations, including lack of public resources and the need
to resort to innovative and different approaches for the
development of various sectors of the economy?

Q.4 What is the permissible scope for interference by courts with
policy making by the Government including methods for disposal
of natural resources?

Q.5 Whether, if the court holds, within the permissible scope of
judicial review, that a policy is flawed, is the court not
obliged to take into account investments made under the said
policy including investments made by foreign investors under
multilateral/bilateral agreements?

Q.6 If the answers to the aforesaid questions lead to an affirmation
of the judgment dated 02.02.2012 then the following questions
may arise, viz.

(i) whether the judgment is required to be given
retrospective effect so as to unsettle all licences issued
and 2G spectrum (800, 900, and 1800 MHz bands) allocated in
and after 1994 and prior to 10.01.2008?

(ii) whether the allocation of 2G spectrum in all
circumstances and in all specific cases for different
policy considerations would nevertheless have to be undone?

And specifically
iii) Whether the telecom licences granted in 1994 would be
affected?

iv) Whether the Telecom licences granted by way of basic
licences in 2001 and licences granted between the period
2003-2007 would be affected?

v) Whether it is open to the Government of India to take
any action to alter the terms of any licence to ensure a
level playing field among all existing licensees?

vi) Whether dual technology licences granted in 2007 and
2008 would be affected?

vii) Whether it is necessary or obligatory for the Government
of India to withdraw the Spectrum allocated to all
existing licensees or to charge for the same with
retrospective effect and if so on what basis and from
what date?

Q.7 Whether, while taking action for conduct of auction in accordance
with the orders of the Supreme Court, it would remain
permissible for the Government to:

(i) Make provision for allotment of Spectrum from time to
time at the auction discovered price and in accordance with
laid down criteria during the period of validity of the
auction determined price?

(ii) Impose a ceiling on the acquisition of Spectrum with the
aim of avoiding the emergence of dominance in the market by
any licensee/applicant duly taking into consideration TRAI
recommendations in this regard?

iii) Make provision for allocation of Spectrum at auction
related prices in accordance with laid down criteria in
bands where there may be inadequate or no competition
(for e.g. there is expected to be a low level of
competition for CDMA in 800 MHz band and TRAI has
recommended an equivalence ratio of 1.5 or 1.3X1.5 for
800 MHz and 900 MHz bands depending upon the quantum of
spectrum held by the licensee that can be applied to
auction price in 1800 MHz band in the absence of a
specific price for these bands)?

Q.8 What is the effect of the judgment on 3G Spectrum acquired by
entities by auction whose licences have been quashed by the said
judgment?
NEW DELHI;
DATED: 12 April 2012 PRESIDENT OF INDIA”

 

2. A bare reading of the Reference shows that it is occasioned by the
decision of this Court, rendered by a bench of two learned Judges on
2nd February, 2012 in Centre for Public Interest Litigation & Ors. Vs.
Union of India & Ors.[1] (for brevity “2G Case”).
3. On receipt of the Reference, vide order dated 9th May, 2012, notice
was issued to the Attorney General for India. Upon hearing the
learned Attorney General, it was directed vide order dated 11th May,
2012, that notice of the Reference shall be issued to all the States
through their Standing Counsel; on Centre for Public Interest
Litigation (CPIL) and Dr. Subramanian Swamy (petitioners in the 2G
Case); as also on the Federation of Indian Chambers of Commerce and
Industry (FICCI) and Confederation of Indian Industry (CII), as
representatives of the Indian industry. On the suggestion of the
learned Attorney General, it was also directed (though not recorded in
the order), that the reference shall be dealt with in two parts viz.
in the first instance, only questions No. 1 to 5 would be taken up for
consideration and the remaining questions shall be taken up later in
the light of our answers to the first five questions.

4. At the commencement of the hearing of the Reference on 10th July,
2012, a strong objection to the maintainability of the Reference was
raised by the writ petitioners in the 2G Case. Accordingly, it was
decided to first hear the learned counsel on the question of validity
of the Reference.

SUBMISSIONS ON MAINTAINABILITY:

5. Mr. Soli Sorabjee, learned senior counsel, appearing for CPIL,
strenuously urged that in effect and substance, the Reference seeks to
question the correctness of the judgment in the 2G Case, which is not
permissible once this Court has pronounced its authoritative opinion
on the question of law now sought to be raised. The learned counsel
argued that reference under Article 143(1) of the Constitution does
not entail appellate or review jurisdiction, especially in respect of
a judgment which has attained finality. According to the learned
counsel, it is evident from the format of the Reference that it does
not express or suggest any ‘doubt’ as regards the question of fact or
law relating to allocation of all natural resources, a sine-qua-non
for a valid reference. In support of the proposition, learned counsel
placed reliance on observations in earlier references – In Re: The
Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947
And The Part C States (Laws) Act, 1950[2], In Re: The Berubari Union
and Exchange of Enclaves Reference Under Article 143(1) of the
Constitution of India[3], In Re: The Kerala Education Bill, 195,7 In
Reference Under Article 143(1) Of The Constitution of India[4],
Special Reference No.1 of 1964[5] (commonly referred to as “Keshav
Singh”), In Re: Presidential Poll[6], In Re: The Special Courts Bill,
1978[7], In the Matter of : Cauvery Water Disputes Tribunal[8]
(hereinafter referred to as “Cauvery-II”) and Special Reference No.1
of 1998 Re.[9]

6. Next, it was contended by the learned senior counsel that if for any
reason, the Executive feels that the 2G Case does not lay down a
correct proposition of law, it is open to it to persuade another
bench, before which the said judgment is relied upon, to refer the
issue to a larger bench for reconsideration. In short, the submission
was that an authoritative pronouncement, like the one in the 2G Case,
cannot be short circuited by recourse to Article 143(1).

7. Learned counsel also contended that the Reference as framed is of an
omnibus nature, seeking answers on hypothetical and vague questions,
and therefore, must not be answered. Commending us to In Re: The
Special Courts Bill, 1978 (supra) and several other decisions, learned
counsel urged that a reference under Article 143(1) of the
Constitution for opinion has to be on a specific question or
questions. It was asserted that by reason of the construction of the
terms of Reference, the manner in which the questions have been framed
and the nature of the answers proposed, this Court would be entitled
to return the Reference unanswered by pointing out the aforesaid
impediments in answering it. Lastly, it was fervently pleaded that if
the present Reference is entertained, it would pave the way for the
Executive to circumvent or negate the effect of inconvenient
judgments, like the decision in the 2G Case, which would not only set
a dangerous and unhealthy precedent, but would also be clearly
contrary to the ratio of the decision in Cauvery II.

8. Mr. Prashant Bhushan, learned senior counsel, while adopting the
arguments advanced by Mr. Soli Sorabjee, reiterated that from the
format of questions No.1 to 5, as well as from the review petition
filed by the Government in the 2G Case, it is clear that the present
Reference seeks to overrule the decision in the 2G Case by reading
down the direction that allowed only ‘auction’ as the permissible
means for allocation of all natural resource, in paragraphs 94 to 96
of the 2G Case, to the specific case of spectrum. It was argued by the
learned counsel that it is apparent from the grounds urged in the
review petition filed by the Government that it understood the ratio
of the 2G Case, binding them to the form of procedure to be followed
while alienating precious natural resources belonging to the people,
and yet it is seeking to use the advisory jurisdiction of this Court
as an appeal over its earlier decision. It was contended that even if
it be assumed that a doubt relating to the disposal of all natural
resources has arisen on account of conflict of decisions on the point,
such a conflict cannot be resolved by way of a Presidential reference;
that would amount to holding that one or the other judgments is
incorrectly decided, which, according to the learned counsel, is
beyond the scope of Article 143(1). Learned counsel alleged that the
language in which the Reference is couched, exhibits mala fides on the
part of the Executive. He thus, urged that we should refrain from
giving an opinion.

9. Dr. Subramanian Swamy, again vehemently objecting to the
maintainability of the Reference, on similar grounds, added that the
present Reference is against the very spirit of Article 143(1), which,
according to the constituent assembly debates, was meant to be invoked
sparingly, unlike the case here. It was pleaded that the Reference is
yet another attempt to delay the implementation of the directions in
the 2G Case. Relying on the decision of this Court in Dr. M. Ismail
Faruqui & Ors. Vs. Union of India & Ors.[10], Dr. Swamy submitted that
we will be well advised to return the Reference unanswered.

10. Mr. G.E. Vahanvati, the learned Attorney General for India, defending
the Reference, submitted that the plea regarding non-maintainability
of the Reference on the ground that it does not spell out a ‘doubt’,
is fallacious on a plain reading of the questions framed therein.
According to him, Article 143(1) uses the word ‘question’ which arises
only when there is a ‘doubt’ and the very fact that the President has
sought the opinion of this Court on the questions posed, shows that
there is a doubt in the mind of the Executive on those issues. It was
stressed that merely because the Reference does not use the word
‘doubt’ in the recitals, as in other cited cases, does not imply that
in substance no doubt is entertained in relation to the mode of
alienation of all natural resources, other than spectrum, more so when
the questions posed for opinion have far reaching national and
international implications. It was urged that the content of the
Reference is to be appreciated in proper perspective, keeping in view
the context and not the form.

11. It was urged that maintainability and the discretion to decline to
answer a reference are two entirely different things. The question of
maintainability arises when ex-facie, the Presidential reference does
not meet the basic requirements of Article 143(1), contrastive to the
question of discretion, which is the power of the Court to decline to
answer a reference, for good reasons, once the reference is
maintainable. In support of the proposition, reliance was placed on
In Re: The Kerala Education Bill, 1957 (supra), Keshav Singh and In
Re: The Special Courts Bill, 1978 (supra). According to the learned
counsel, the question as to whether the reference is to be answered or
not, is not an aspect of maintainability, and is to be decided only
after hearing the reference on merits.

12. Learned Attorney General, while contesting the plea that in a
reference under Article 143(1), correctness or otherwise of earlier
decisions can never be gone into, submitted that in a Presidential
reference, there is no constitutional embargo against reference to
earlier decisions in order to clarify, restate or even to form a fresh
opinion on a principle of law, as long as an inter partes decision is
left unaffected. In support of the contention that in the past,
references have been made on questions in relation to the correctness
of judgments, learned counsel placed reliance on the decisions of this
Court In Re: The Delhi Laws Act, 1912 (supra), Special Reference No.1
of 1998 (supra), Keshav Singh (supra) and of the Privy Council In re
Piracy Jure Gentium[11]. It was asserted that it has been repeatedly
clarified on behalf of the Executive that the decision in the 2G Case
has been accepted and is not being challenged. The Reference was
necessitated by certain observations made as a statement of law in
the said judgment which require to be explicated. Referring to
certain observations in Re: The Berubari Union and Exchange of
Enclaves (supra), learned counsel submitted that this Court had
accepted that a reference could be answered to avoid protracted
litigation.

13. Learned Attorney General also contended that withdrawal of the review
petition by the Government is of no consequence ; its withdrawal does
not imply that the question about the permissible manner of disposal
of other natural resources, and the issues regarding the environment
for investment in the country, stood settled. Stoutly refuting the
allegation that the reference is mala fide, learned counsel submitted
that in In Re Presidential Poll (supra), it is clearly laid down that
the Court cannot question the bona fides of the President making the
reference.

14. Mr. T.R. Andhyarujina, learned senior counsel, voiced concerns arising
out of an apparent conflict between provisions of the statutes and the
judgment delivered in the 2G Case; specifically with reference to
Sections 10 and 11 of the Mines and Minerals (Regulation and
Development) Act, 1957 (for short, “MMRD Act”), which prescribe a
policy of preferential treatment and first come first served, unlike
the 2G Case, which according to the learned counsel only mandates
auction for all natural resources. He thus, urged this Court to
dispel all uncertainties regarding the true position of law after the
judgment in the 2G Case, by holding it as per incuriam in light of the
provisions of the MMRD Act and other statutes.

15. Mr. Harish Salve, learned senior counsel, appearing on behalf of CII,
while supporting the Reference, fervently urged that the contention
that the Reference deserves to be returned unanswered due to the
absence of the use of the word ‘doubt’ in the recitals of the
Reference, is untenable. According to the learned counsel, under
Article 143(1), the President can seek an opinion on any question of
law or fact that has arisen, or is likely to arise, which is of such a
nature and such public importance that it is expedient to seek the
opinion of this Court. There is no additional condition that there
should be any ‘doubt’ in the mind of the President. It was submitted
by the learned counsel that the need for a Presidential reference may
also arise to impart certainty to certain questions of law or fact
which are of such a nature and of such moment as to warrant seeking
opinion of this Court. It was urged that a pedantic interpretation,
by which a Presidential reference would be declined on semantic
considerations, such as the failure to use the word ‘doubt’ in the
reference, should be eschewed.

16. Learned counsel contended that at the stage of making a reference, it
is the satisfaction of the President in relation to the nature of the
question and its importance that is relevant. As a matter of comity of
institutions, this Court has always declined to go behind the reasons
that prevailed upon the President to make a reference and its bona
fides. Nevertheless, this Court always has the discretion not to
answer any such reference or the questions raised therein for good
reasons. It was stressed that since this Court does not sit in review
over the satisfaction of the President, the question of jurisdiction
and of maintainability does not arise.

17. Learned counsel also argued that the premise that earlier judgments of
this Court are binding in reference jurisdiction, and thus any
reference, which impinges upon an earlier judgment should be returned
unanswered, is equally fallacious. It was argued that the principle
of stare decisis and the doctrine of precedent are generally accepted
and followed as rules of judicial discipline and not jurisdictional
fetters and, therefore, this Court is not prevented from re-examining
the correctness of an earlier decision. On the contrary, the
precedents support the proposition that this Court can, when
exercising its jurisdiction under Article 143(1), examine the
correctness of past precedents. According to the learned counsel, in
Keshav Singh, this Court did examine the correctness of the judgment
in Pandit M.S.M. Sharma Vs. Shri Sri Krishna Sinha & Ors.[12]
(hereinafter referred to as “Sharma”). Explaining the ratio of the
decision in Cauvery-II, learned counsel submitted that it is clear
beyond any pale of doubt that the said pronouncement does not lay
down, as an abstract proposition of law, that under Article 143(1),
this Court cannot consider the correctness of any precedent. What it
lays down is that once a lis between the parties is decided, the
operative decree can only be opened by way of a review. According to
the learned counsel, overruling a judgment — as a precedent — does not
tantamount to reopening the decree.

18. Arguing on similar lines, Mr. C.A. Sundaram, learned senior counsel
appearing on behalf of FICCI, contended that if the observations in
the 2G Case are read as applying to all natural resources and not
limited to spectrum, it would tantamount to de facto policy
formulation by the Court, which is beyond the scope of judicial
review. He also took a nuanced stance on this Court’s power of
reconsideration over its precedents. It was submitted that a
precedent can be sliced into two parts viz. the decision or operative
part of an order or decree pertaining to the inter partes dispute and
the ratio with respect to the position of law; the former being beyond
this Court’s powers of review once an earlier bench of this Court has
pronounced an authoritative opinion on it, but not the latter. He
thus, urged that this Court does have the power to reconsider the
principles of law laid down in its previous pronouncements even under
Article 141.

19. Mr. Darius Khambata, learned Advocate General of Maharashtra,
submitted that observations in the 2G Case were made only with regard
to spectrum thus, leaving it open to this Court to examine the issue
with regard to alienation of other natural resources. It was urged
that even if broader observations were made with respect to all
natural resources, it would still be open to this Court under Article
143(1) to say otherwise. He also pointed to certain State
legislations that prescribe methods other than auction and thus, urged
this Court to answer the first question in the negative lest all those
legislations be deemed unconstitutional.

20. Mr. Sunil Gupta, learned senior counsel, appearing on behalf of the
State of U.P., added that when Article 143(1) of the Constitution
unfolds a high prerogative of a constitutional authority, namely, the
President, to consult this Court on question of law or fact, it
contains a no less high prerogative of this Court to report to the
President its opinion on the question referred, either by making or
declining to give an answer to the question. In other words,
according to the learned counsel, the issue of a reference being
maintainable at the instance of the President is an issue different
from the judicial power of this Court to answer or not to answer the
question posed in the reference.

21. Mr. Ravindra Shrivastava, learned senior counsel appearing on behalf
of the State of Chhattisgarh, contended that neither history supports
nor reality warrants auction to be a rule of disposal of all natural
resources in all situations. He referred to decisions of this Court
that unambiguously strike a just balance between considerations of
power of the State and duty towards public good, by leaving the choice
of method of allocation of natural resources to the State, as long as
it conforms to the requirements of Article 14. It was pleaded that
the State be allowed the choice of methodology of allocation,
especially in cases where it intends to incentivize investments and
job creation in backward regions that would otherwise have been left
untouched by private players if resources were given at market prices.

22. To sum up, the objections relating to the maintainability of the
Reference converge mainly on the following points: (i) the
foundational requirement for reference under Article 143(1) viz. a
genuine ‘doubt’ about questions of fact or law that the executive
labours under, is absent; (ii) the filing and withdrawal of a review
petition whose recitals pertain to the 2G Case would be an impediment
in the exercise of discretion under Article 143(1); (iii) the language
in which the Reference is couched exhibits mala fides on the part of
the Executive; (iv) in light of enunciation of law on the point in
Cauvery II, entertaining a Presidential reference on a subject matter,
which has been decided upon directly and with finality, is barred; (v)
the present Reference is an attempt to overturn the judgment of this
Court in the 2G Case, which is against the spirit of Article 143(1)
of the Constitution and (vi) the Executive is adopting the route of
this Reference to wriggle out of the directions in the 2G Case as the
same are inconvenient for them to follow.

DISCUSSION:
23. Before we evaluate the rival stands on the maintainability of the
Reference, it would be necessary to examine the scope and breadth of
Article 143 of the Constitution, which reads thus:
“143. Power of President to consult Supreme Court.—(1) If at any time
it appears to the President that a question of law or fact has arisen,
or is likely to arise, which is of such a nature and of such public
importance that it is expedient to obtain the opinion of the Supreme
Court upon it, he may refer the question to that Court for
consideration and the Court may, after such hearing as it thinks fit,
report to the President its opinion thereon.

(2) The President may, notwithstanding anything in the proviso to
article 131, refer a dispute of the kind mentioned in the said proviso
to the Supreme Court for opinion and the Supreme Court shall, after
such hearing as it thinks fit, report to the President its opinion
thereon.”

 
A bare reading at the Article would show that it is couched in broad terms.
It is plain from the language of Article 143(1) that it is not necessary
that the question on which the opinion of the Supreme Court is sought must
have actually arisen. The President can make a reference under the said
Article even at an anterior stage, namely, at the stage when the President
is satisfied that the question is likely to arise. The satisfaction
whether the question meets the pre-requisites of Article 143(1) is
essentially a matter for the President to decide. Upon receipt of a
reference under Article 143(1), the function of this Court is to consider
the reference; the question(s) on which the President has made the
reference, on the facts as stated in the reference and report to the
President its opinion thereon.

24. Nevertheless, the usage of the word “may” in the latter part of
Article 143(1) implies that this Court is not bound to render advisory
opinion in every reference and may refuse to express its opinion for
strong, compelling and good reasons. In Keshav Singh, highlighting the
difference in the phraseology used in clauses (1) and (2) of Article
143, P.B. Gajendragadkar, C.J., speaking for the majority, held as
follows:
“…whereas in the case of reference made under Article 143 (2) it is
the constitutional obligation of this Court to make a report on that
reference embodying its advisory opinion, in a reference made under
Article 143 (1) there is no such obligation. In dealing with this
latter class of reference, it is open to this Court to consider
whether it should make a report to the President giving its advisory
opinion on the questions under reference.”

 

 

25. Further, even in an earlier judgment in In re: Allocation of Lands and
Buildings Situate in a Chief Commissioner’s Province and in the matter
of Reference by the Governor-General under S. 213, Government of India
Act, 1935[13], the Federal Court had said that even though the Court
is within its authority to refuse to answer a question on a reference,
it must be unwilling to exercise its power of refusal “except for good
reasons.” A similar phrase was used in In Re: The Kerala Education
Bill, 1957 (supra) when this Court observed that opinion on a
reference under Article 143(1), may be declined in a “proper case” and
“for good reasons”. In Dr. M. Ismail Faruqui & Ors. (supra), it was
added that a reference may not be answered when the Court is not
competent to decide the question which is based on expert evidence or
is a political one.

 
26. Having noted the relevant contours of Article 143(1) of the
Constitution, we may now deal with the objections to the
maintainability of the Reference.

 

 

27. There is no denying the fact that in the entire Reference the word
‘doubt’ has not been used. It is also true that in all previous
references, noted in para 5 (supra), it had been specifically
mentioned that doubts had arisen about various issues. Nonetheless,
the fact remains that Article 143(1) does not use the term ‘doubt’.
No specific format has been provided in any of the Schedules of the
Constitution as to how a reference is to be drawn. The use of the
word ‘doubt’ in a reference is also not a constitutional command or
mandate. Needless to emphasise that the expression, ‘doubt’, which
refers to a state of uncertainty, may be with regard to a fact or a
principle. In P. Ramanatha Aiyar’s, The Major Law Lexicon, 4th
Edition, the words ‘doubt’ and ‘question’ have been dealt with in the
following manner:-
“Doubt, Question. These terms express the act of the mind in staying
its decision. Doubt lies altogether in the mind; it is a less active
feeling than question; by the former we merely suspend decision; by
the latter we actually demand proofs in order to assist us in
deciding. We may doubt in silence. We cannot question without
expressing it directly or indirectly. He who suggests doubts does it
with caution: he who makes a question throws in difficulties with a
degree of confidence. We doubt the truth of a position; we question
the veracity of an author. (Crabb.)”
As per the Concise Oxford Dictionary (Tenth Edition), ‘question’ means : “a
doubt; the raising of a doubt or objection; a problem requiring solution”.

In Black’s Law Dictionary ‘doubt’, as a verb, has been defined as follows:
“To question or hold questionable.”
The word ‘doubt’, as a noun, has been described as under:-

“Uncertainty of mind; the absence of a settled opinion or conviction;
the attitude of mind towards the acceptance of or belief in a
proposition, theory, or statement, in which the judgment is not at
rest but inclines alternately to either side.”

28. The afore-extracted recitals of the instant Reference state that in
the current circumstances, certain questions of law with far reaching
national and international implications have arisen, including in
relation to conduct of the auction and the regulation of the
telecommunications industry in accordance with the judgment (2G Case)
that may affect the flow of FDI in the telecom industry and otherwise
in other sectors into this country. Thereafter, it is also stated
that questions of law that have arisen are of great public importance
and are of far reaching consequences for the development of the
country and hence, it is thought expedient to obtain the opinion of
this Court. Question No.1 of the reference reads as follows:-

“Whether the only permissible method for disposal of all natural
resources across all sectors and in all circumstances is by the
conduct of auctions?”

 
29. At this juncture, reference may profitably be made to the decision in
In Re: The Special Courts Bill, 1978 (supra), an opinion by a Bench of
seven learned Judges, wherein it was observed as follows:

“27. We were, at one stage of the arguments, so much exercised over
the undefined breadth of the reference that we were considering
seriously whether in the circumstances it was not advisable to return
the reference unanswered. But the written briefs filed by the parties
and the oral arguments advanced before us have, by their fullness and
ability, helped to narrow down the legal controversies surrounding the
Bill and to crystallize the issues which arise for our consideration.
We propose to limit our opinion to the points specifically raised
before us. It will be convenient to indicate at this stage what those
points are.”

 

 

 

While expressing the hope that, in future, specific questions would be
framed for the opinion of this Court, Y.V. Chandrachud (as his Lordship
then was), speaking for the majority, said:

“30. We hope that in future, whenever a reference is made to this
Court under Article 143 of the Constitution, care will be taken to
frame specific questions for the opinion of the Court. Fortunately,
it has been possible in the instant reference to consider specific
questions as being comprehended within the terms of the reference but
the risk that a vague and general reference may be returned unanswered
is real and ought to engage the attention of those whose duty it is to
frame the reference. Were the Bill not as short as it is, it would
have been difficult to infuse into the reference the comprehension of
the two points mentioned by us above and which we propose to decide.
A long Bill would have presented to us a rambling task in the absence
of reference on specific points, rendering it impossible to formulate
succinctly the nature of constitutional challenge to the provisions of
the Bill.”

 
30. From the afore-extracted paragraphs, three broad principles emerge:
(i) a reference should not be vague, general and undefined, (ii) this
Court can go through the written briefs and arguments to narrow down
the legal controversies, and (iii) when the question becomes
unspecific and incomprehensible, the risk of returning the reference
unanswered arises. In Keshav Singh, this Court while dealing with the
validity of the reference, referred to earlier decisions and opined as
follows:
“…It would thus be seen that the questions so far referred by the
President for the Advisory opinion of this Court under Article 143(1)
do not disclose a uniform pattern and that is quite clearly consistent
with the broad and wide words used in Article 143(1).”

 

31. An analysis of the afore-noted cases, indicates that neither has a
particular format been prescribed nor any specific pattern been
followed in framing references. The first principle relates to the
‘form’ and the second pertains to the ‘pattern of content’.
Holistically understood, on the ground of form or pattern alone, a
reference is not to be returned unanswered. It requires appropriate
analysis, understanding and appreciation of the content or the issue
on which doubt is expressed, keeping in view the concept of
constitutional responsibility, juridical propriety and judicial
discretion.

 

32. Thus, we find it difficult to accept the stand that use of the word
‘doubt’ is a necessary condition for a reference to be maintainable
under Article 143(1). That apart, in our view, question No.1, quoted
above, is neither vague nor general or unspecific, but is in the realm
of comprehension which is relatable to a question of law. It
expresses a ‘doubt’ and seeks the opinion of the Court on that
question, besides others.

 
33. In so far as the impact of filing and withdrawal of the review
application by the Union of India, against the decision in the 2G Case
on the maintainability of the instant Reference is concerned, it is a
matter of record that in the review petition, certain aspects of the
grounds for review which have been stated in the recitals of the
Reference as well as in some questions, were highlighted. However,
there is a gulf of difference between the jurisdiction exercised by
this Court in a review and the discretion exercised in answering a
reference under Article 143(1) of the Constitution. A review is
basically guided by the well-settled principles for review of a
judgment and a decree or order passed inter se parties. The Court in
exercise of power of review may entertain the review under the
acceptable and settled parameters. But, when an opinion of this Court
is sought by the Executive taking recourse to a constitutional power,
needless to say, the same stands on a different footing altogether. A
review is lis specific and the rights of the parties to the
controversy are dealt with therein, whereas a reference is answered
keeping in view the terms of the reference and scrutinising whether
the same satisfies the requirements inherent in the language employed
under Article 143(1) of the Constitution. In our view, therefore,
merely because a review had been filed and withdrawn and in the
recital the narration pertains to the said case, the same would not be
an embargo or impediment for exercise of discretion to answer the
Reference.

 

 

34. As far as the allegation of mala fide is concerned, it is trite that
this Court is neither required to go into the truth or otherwise of
the facts of the recitals nor can it go into the question of bona
fides or otherwise of the authority making a reference. [See: In Re:
Presidential Poll (supra)]. To put it differently, the constitutional
power to seek opinion of this Court rests with the President. The
only discretion this Court has is either to answer the reference or
respectfully decline to send a report to the President. Therefore,
the challenge on the ground of mala fide, as raised, is unsustainable.

 

35. The principal objection to the maintainability of the Reference is
that it is an indirect endeavour to unsettle and overturn the verdict
in the 2G Case, which is absolutely impermissible. The stand of the
objectors is that the 2G Case is an authoritative precedent in respect
of the principle or proposition of law that all natural resources are
to be disposed of by way of public auction and, therefore, the
Reference should be held as not maintainable. Emphasis in this behalf
was on paragraphs 85 and 94 to 96 of the said judgment. In support of
the proposition, heavy reliance was placed on Cauvery II.

 
36. At the outset, we may note that the learned Attorney General has more
than once stated that the Government of India is not questioning the
correctness of the directions in the 2G Case, in so far as the
allocation of spectrum is concerned, and in fact the Government is in
the process of implementing the same, in letter and spirit. Therefore,
in the light of the said statement, we feel that it would be
unnecessary to comment on the submission that the Reference is an
attempt to get an opinion to unsettle the decision and directions of
this Court in the 2G Case. Nevertheless, since in support of the
aforesaid submission, the opinion of this Court in Cauvery II has been
referred to and relied upon in extenso, it would be appropriate to
decipher the true ratio of Cauvery II, the lynchpin of the opposition
to maintainability of the present Reference.

 

37. Cauvery II was preceded by State of Tamil Nadu Vs. State of Karnataka
& Ors.[14] (hereinafter referred to as “Cauvery I”), which dwelled on
the issue whether the Cauvery Water Disputes Tribunal (for short “the
Tribunal”) had the power to grant interim relief. In that case,
applications filed by the State of Tamil Nadu for urgent interim
reliefs were rejected by the Tribunal on the ground that they were not
maintainable. This order was challenged, resulting in the judgment
dated 26th April, 1991 by this Court, where it was held as follows:
“15. Thus, we hold that this Court is the ultimate interpreter of the
provisions of the Interstate Water Disputes Act, 1956 and has an
authority to decide the limits, powers and the jurisdiction of the
Tribunal constituted under the Act. This Court has not only the power
but obligation to decide as to whether the Tribunal has any
jurisdiction or not under the Act, to entertain any interim
application till it finally decides the dispute referred to it…”

 

 

38. The Tribunal had ruled that since it was not like other courts with
inherent powers to grant interim relief, only in case the Central
Government referred a case for interim relief to it, would it have the
jurisdiction to grant the same. Inter-alia, the Court observed that
the Tribunal was wrong in holding that the Central Government had not
made any reference for granting any interim relief, and concluded that
the interim reliefs prayed for clearly fell within the purview of the
dispute referred by the Central Government. Accordingly, the appeals
preferred by the State of Tamil Nadu were allowed and the Tribunal was
directed to decide the applications for interim relief. However, the
Court did not decide the larger question of whether a Tribunal,
constituted under the Interstate Water Disputes Act, 1956 had the
power to grant an interim relief, though the answer to the same may be
deduced from the final direction.

 
39. In pursuance of these directions, the Tribunal decided the application
and vide its order dated 25th June, 1991, proceeded to issue certain
directions to the State of Karnataka. Thereafter, on 25th July 1991,
the Governor of Karnataka issued an Ordinance named “The Karnataka
Cauvery Basin Irrigation Protection Ordinance, 1991”. Hot on the
heels of the Ordinance, the State of Karnataka also instituted a suit
under Article 131 of the Constitution against the State of Tamil Nadu
for a declaration that the Tribunal’s order granting interim relief
was without jurisdiction and, therefore, null and void, etc. The
Ordinance was replaced by Act 27 of 1991. In the context of these
developments, the President made a reference to this Court under
Article 143(1) of the Constitution, posing three questions for
opinion. The third question of the reference, relevant for the
present Reference, was :-
“3. Whether a Water Disputes Tribunal constituted under the Act is
competent to grant any interim relief to the parties to the dispute.”

 

 

 

 

However, while dealing with the reference in Cauvery II, the Court split
the question, viz., whether a Water Disputes Tribunal constituted under the
Act is competent to grant any interim relief into two parts: (i) when a
reference for grant of interim relief is made to the Tribunal, and (ii)
when no such reference is made to it. It was contended by the States of
Karnataka and Kerala that if the Tribunal did not have power to grant
interim relief, the Central Government would be incompetent to make a
reference for the purpose in the first place and the Tribunal in turn would
have no jurisdiction to entertain such reference, if made. Dealing with the
said submission, after making a reference to the earlier order, this Court
observed that once the Central Government had made a reference to the
Tribunal for consideration of the claim for interim relief, prayed for by
the State of Tamil Nadu, the Tribunal had jurisdiction to consider the said
request being a part of the reference itself. Implicit in the said decision
was the finding that the subject of interim relief was a matter connected
with or relevant to the water dispute within the meaning of Section 5(1) of
the said Act. It was held that the Central Government could refer the
matter for granting interim relief to the Tribunal for adjudication.

 
40. The consequence of the Court in coming to the conclusion, while
replying to the third question was that the Tribunal did not have the
jurisdiction to make an interim award or grant interim relief, would
have not only resulted in the Court overruling its earlier decision
between the two contending parties i.e. the two States, but it would
have also then required the Court to declare the order of the Tribunal
as being without jurisdiction. The Court therefore, said :
“83…Although this Court by the said decision has kept open the
question, viz., whether the Tribunal has incidental, ancillary,
inherent or implied power to grant the interim relief when no
reference for grant of such relief is made to it, it has in terms
concluded the second part of the question. We cannot, therefore,
countenance a situation whereby question 3 and for that matter
questions 1 and 2 may be so construed as to invite our opinion on the
said decision of this Court. That would obviously be tantamount to our
sitting in appeal on the said decision which it is impermissible for
us to do even in adjudicatory jurisdiction. Nor is it competent for
the President to invest us with an appellate jurisdiction over the
said decision through a Reference under Article 143 of the
Constitution.”

These observations would suggest that the Court declined to construe
Article 143 as a power any different from its adjudicative powers and for
that reason, said that what could not be done in the adjudicatory process
would equally not be achieved through the process of a reference.

41. The expression, “sitting in appeal” was accurately used. An appellate
court vacates the decree (or writ, order or direction) of the lower
court when it allows an appeal – which is what this Court was invited
to do in Cauvery I. This Court, in that appeal decided earlier, held
that the Tribunal had the jurisdiction to pass the interim order
sought by the State of Tamil Nadu. To nullify the interim order
passed by the Tribunal, pursuant to a direction of the Supreme Court,
on the ground that it was without jurisdiction, would necessarily
require vacating the direction of the Supreme Court to the Tribunal to
exercise its jurisdiction and decide the interim matter. Para 85 of
that decision puts the matter beyond any pale of doubt:
“85… In the first instance, the language of clause (1) of Article
143 far from supporting Shri Nariman’s contention is opposed to it.
The said clause empowers the President to refer for this Court’s
opinion a question of law or fact which has arisen or is likely to
arise. When this Court in its adjudicatory jurisdiction pronounces
its authoritative opinion on a question of law, it cannot be said
that there is any doubt about the question of law or the same is res
integra so as to require the President to know what the true
position of law on the question is. The decision of this Court on a
question of law is binding on all courts and authorities. Hence
under the said clause the President can refer a question of law only
when this Court has not decided it. Secondly, a decision given by
this Court can be reviewed only under Article 137 read with Rule 1
of Order 40 of the Supreme Court Rules, 1966 and on the conditions
mentioned therein. When, further, this Court overrules the view of
law expressed by it in an earlier case, it does not do so sitting in
appeal and exercising an appellate jurisdiction over the earlier
decision. It does so in exercise of its inherent power and only in
exceptional circumstances such as when the earlier decision is per
incuriam or is delivered in the absence of relevant or material
facts or if it is manifestly wrong and productive of public
mischief. [See: Bengal Immunity Company Ltd. v. State of Bihar
(1955) 2 SCR 603]. Under the Constitution such appellate
jurisdiction does not vest in this Court, nor can it be vested in it
by the President under Article 143. To accept Shri Nariman’s
contention would mean that the advisory jurisdiction under Article
143 is also an appellate jurisdiction of this Court over its own
decision between the same parties and the executive has a power to
ask this Court to revise its decision. If such power is read in
Article 143 it would be a serious inroad into the independence of
judiciary.”

 

42. Eventually, the reference was answered in respect of question No.3 in
the following terms:-
“Question No.3: (i) A Water Disputes Tribunal constituted under
the Act is competent to grant any interim relief to the parties to the
dispute when a reference for such relief is made by the Central
Government;

 

 
(ii) whether the Tribunal has power to grant interim relief
when no reference is made by the Central Government for such relief is
a question which does not arise in the facts and circumstances under
which the Reference is made. Hence we do not deem it necessary to
answer the same.”

 
43. The main emphasis of Mr. Soli Sorabjee was on the second part of
paragraph 85, which, according to him, prohibits this Court from
overruling a view expressed by it previously under Article 143(1). We
are not persuaded to agree with the learned senior counsel. The
paragraph has to be read carefully. Sawant J. first considers
the case of a “decision” of this Court whereas in the subsequent
sentence he considers a “view of law” expressed by the Court, and
attempts to explain the difference between the approaches to these two
situations. These words are sometimes used interchangeably but not
hereinabove. We believe that Justice Sawant consciously draws a
difference between the two by using the words “When, further, this
Court overrules the view of law…” after discussing the case of a
“decision”.

44. Black’s Law Dictionary defines a “decision” as “a determination
arrived at after consideration of facts, and, in legal context, law”;
an “opinion” as “the statement by a judge or court of the decision
reached in regard to a cause tried or argued before them, expounding
the law as applied to the case, and detailing the reasons upon which
the judgment is based”; and explains the difference between a
“decision” and “opinion” as follows:

“Decision is not necessarily synonymous with ‘opinion’. A decision of
the Court is its judgment; the opinion is the reasons given for that
judgment, or the expression of the views of the judge.”

 

 

45. Therefore, references in Para 85 to “decision” and “view of law” must
be severed from each other. The learned Judge observes that in case
of a decision, the appellate structure is exhausted after a
pronouncement by the Supreme Court. Therefore, the only option left
to the parties is of review or curative jurisdiction (a remedy carved
out in the judgment in Rupa Ashok Hurra Vs. Ashok Hurra & Anr.[15]).
After the exercise of those limited options, the concerned parties
have absolutely no relief with regard to the dispute; it is considered
settled for eternity in the eyes of the law. However what is not
eternal and still malleable in the eyes of law is the opinion or “view
of law” pronounced in the course of reaching the decision. Justice
Sawant clarifies that unlike this Court’s appellate power, its power
to overrule a previous precedent is an outcome of its inherent power
when he says, “…it does not do so sitting in appeal and exercising an
appellate jurisdiction over the earlier decision. It does so in
exercise of its inherent power and only in exceptional
circumstances….” This Court has pointed out the difference between
the two expressions in Rupa Ashok Hurra (supra), in the following
words:
“24. There is no gainsaying that the Supreme Court is the court of
last resort — the final court on questions both of fact and of law
including constitutional law. The law declared by this Court is the
law of the land; it is precedent for itself and for all the
courts/tribunals and authorities in India. In a judgment there will be
declaration of law and its application to the facts of the case to
render a decision on the dispute between the parties to the lis. It is
necessary to bear in mind that the principles in regard to the highest
court departing from its binding precedent are different from the
grounds on which a final judgment between the parties, can be
reconsidered. Here, we are mainly concerned with the latter. However,
when reconsideration of a judgment of this Court is sought the
finality attached both to the law declared as well as to the decision
made in the case, is normally brought under challenge…”
Therefore, there are two limitations – one jurisdictional and the other
self-imposed.

 

 

46. The first limitation is that a decision of this Court can be reviewed
only under Article 137 or a Curative Petition and in no other way. It
was in this context that in para 85 of Cauvery II, this Court had
stated that the President can refer a question of law when this Court
has not decided it. Mr. Harish Salve, learned senior counsel, is
right when he argues that once a lis between parties is decided, the
operative decree can only be opened in review. Overruling the judgment
– as a precedent – does not reopen the decree.

 

 

47. The second limitation, a self imposed rule of judicial discipline, was
that overruling the opinion of the Court on a legal issue does not
constitute sitting in appeal, but is done only in exceptional
circumstances, such as when the earlier decision is per incuriam or is
delivered in the absence of relevant or material facts or if it is
manifestly wrong and capable of causing public mischief. For this
proposition, the Court relied upon the judgment in the Bengal Immunity
case (supra) wherein it was held that when Article 141 lays down that
the law declared by this Court shall be binding on all courts within
the territory of India, it quite obviously refers to courts other than
this Court; and that the Court would normally follow past precedents
save and except where it was necessary to reconsider the correctness
of law laid down in that judgment. In fact, the overruling of a
principle of law is not an outcome of appellate jurisdiction but a
consequence of its inherent power. This inherent power can be
exercised as long as a previous decree vis-à-vis lis inter partes is
not affected. It is the attempt to overturn the decision of a
previous case that is problematic which is why the Court observes that
“under the Constitution such appellate jurisdiction does not vest in
this Court, nor can it be vested in it by the President under Article
143.”

 

 

48. Therefore, the controversy in Cauvery II was covered by the decision
rendered by this Court in Cauvery I between the parties and the
decision operated as res judicata and hence, it was opined that
discretion under Article 143(1) could not be exercised. It has also
been observed that this Court had analysed the relevant provisions of
the Inter-State Water Disputes Act, 1956 and thereafter had come to
the conclusion that the Tribunal had jurisdiction to grant interim
relief if the question of granting interim relief formed part of the
reference. On this bedrock it was held that the decision operated as
res judicata. It is, therefore, manifest from Cauvery II that the
Court was clearly not opposed to clarifying the ratio of a previous
judgment in Cauvery I, in the course of an advisory jurisdiction.
Afore-extracted para 85 of Cauvery II, restricts this Court’s advisory
jurisdiction on the limited point of overturning a decided issue vis-à-
vis a ‘dispute’ or lis inter partes.

 

 

49. Finally a seven Judge Bench of this Court has clearly held that this
Court, under Article 143(1), does have the power to overrule a
previous view delivered by it. Justice Chandrachud, C.J. in In re:
The Special Courts Bill (supra) held:

“101…We are inclined to the view that though it is always open to this
Court to re-examine the question already decided by it and to
overrule, if necessary, the view earlier taken by it, insofar as all
other courts in the territory of India are concerned they ought to be
bound by the view expressed by this Court even in the exercise of its
advisory jurisdiction under Article 143(1) of the Constitution.”

 

50. There is a catena of pronouncements in which this Court has either
explained, clarified or read down the ratio of previous judgments. In
the very first reference, In Re: Delhi Laws Act, 1912 (supra), the
reference was made by reason of a judgment of the Federal Court in
Jatindra Nath Gupta Vs. The Province of Bihar & Ors.[16]. The
background of that reference was explained by Mukherjea, J. as under:
“The necessity of seeking the advisory opinion of this Court is stated
to have arisen from the fact that because of the decision of the
Federal Court in Jatindra Nath Gupta v. The Province of Bihar, which
held the proviso to sub-section (3) of Section 1 of the Bihar
Maintenance of Public Order Act, 1947, ultra vires the Bihar
Provincial Legislature, by reason of its amounting to a delegation of
its legislative powers to an extraneous authority, doubts have arisen
regarding the validity of the three legislative provisions mentioned
above, the legality of the first and the second being actually called
in question in certain judicial proceedings which are pending before
some of the High Courts in India.”

 
Justice Das in the same opinion, while noting that reliance was placed by
learned counsel for the interveners on the judgment of the Federal Court in
Jatindra Nath Gupta (supra), recorded that the learned Attorney General had
strenuously challenged the correctness of the decision of the majority of
the Federal Court in that case. Inter-alia, observing that the reference
was in a way occasioned by that decision, the learned Judge held as
follows:

“I feel bound to say, with the utmost humility and for reasons given
already, that the observations of the majority of the Federal Court in
that case went too far and, in agreement with the learned Attorney-
General, I am unable to accept them as correct exposition of the
principles relating to the delegation of legislative power.”

 
51. In this context, it would be beneficial to refer to Keshav Singh’s
case. In the said case, a reference was made by the President which
fundamentally pertained to the privileges of the Legislative Assembly
and exercise of jurisdiction by a Bench of the High Court. The High
Court entertained a writ petition under Article 226 of the
Constitution, challenging the decision of the Assembly committing one
Keshav Singh, who was not one of its members, to prison for its
contempt. The issue was whether by entertaining the writ petition,
the Judges of the High Court were in contempt of the Legislature for
infringement of its privileges and immunities. For the same, this
Court proceeded to construe the relevant provisions contained in
Article 194(3) and its harmonization with other Articles of the
Constitution, especially Articles 19(1)(a), 21 & 22. In that context,
the decision in “Sharma” (supra) came up for consideration. One of the
questions that arose in Sharma’s case was the impact of Articles
19(1)(a) and 21 on the provisions contained in the latter part of
Article 194(3). The majority view was that the privilege in question
was subsisting at the relevant time and must, therefore, deemed to be
included under the latter part of Article 194(3). It was held that
Article 19(1)(a) did not apply under the rule of harmonious
construction, where Article 19(1)(a) was in direct conflict with
Article 194(3). The particular provision in the latter Article would
prevail over the general provision contained in the former. It was
further held that though Article 21 applied, it had not been
contravened. The minority view, on the other hand, held that the
privilege in question had not been established; even assuming the same
was established and it was to be included in the latter part of
Article 194(3), yet it must be controlled by Article 19(1)(a) on the
ground that Fundamental Rights guaranteed by Part III of the
Constitution were of paramount importance and must prevail over a
provision like the one contained in Article 194(3) which may be
inconsistent with them. The majority decision also commented on the
decision in Gunupati Keshavram Reddy Vs. Nafisul Hasan & the State of
U.P.[17] and observed that the said decision was based entirely on a
concession and could not, therefore, be deemed to be a considered
decision of this Court.

 

 

52. The decision in Keshavram Reddy (supra) dealt with the applicability
of Article 22(2) to a case falling under the latter part of Article
194(3). It is worth noting that the minority opinion of Sharma
treated Keshavram Reddy, as expressing a considered opinion, which was
binding on the Court. In Keshav Singh it was opined that in Sharma’s
case, the majority decision held in terms that Article 21 was
applicable to the contents of Article 194(3), but on merits, it came
to the conclusion that the alleged contravention had not been proved.
Commenting on the minority view it was opined that it was unnecessary
to consider whether Article 21 as such applied because the said view
treated all the Fundamental Rights guaranteed by Part III as
paramount, and therefore, each one of them could control the
provisions of Article 194(3).

 

 

53. At that juncture, the Bench stated that in the case of Sharma,
contentions urged by the petitioner did not raise a general issue as
to the relevance and applicability of all the fundamental rights
guaranteed by Part III at all. The contravention of only two Articles
was pleaded and they were Articles 19(1)(a) and 21. Strictly
speaking, it was, therefore, unnecessary to consider the larger issue
as to whether the latter part of Article 194(3) was subject to the
fundamental rights in general, and indeed, even on the majority view
it could not be said that the said view excluded the application of
all fundamental rights, for the obvious and simple reason that Article
21 was held to be applicable and the merits of the petitioner’s
arguments about its alleged contravention in his case were examined
and rejected. Therefore, it was not right to read the majority
decision as laying down a general proposition that whenever there is a
conflict between the provisions of the latter part of Article 194(3)
and any of the provisions of the fundamental rights guaranteed by Part
III, the latter must always yield to the former. It was further
observed that the majority decision had incidentally commented on the
decision in Keshavram Reddy’s case (supra). Apart from that there was
no controversy about the applicability of Article 22 in that case,
and, therefore, the comment made by the majority judgment on the
earlier decision was partly not accurate. Their Lordships adverted to
the facts in Sharma’s case wherein the majority judgment had observed
that it “proceeded entirely on a concession of counsel and cannot be
regarded as a considered opinion on the subject.” After so stating,
the Bench opined thus:
“…There is no doubt that the first part of this comment is not
accurate. A concession was made by the Attorney-General not on a point
of law which was decided by the Court, but on a point of fact; and
so, this part of the comment cannot strictly be said to be justified.
It is, however, true that there is no discussion about the merits of
the contention raised on behalf of Mr. Mistry and to that extent, it
may have been permissible to the majority judgment to say that it was
not a considered opinion of the Court. But, as we have already pointed
out, it was hardly necessary for the majority decision to deal with
the point pertaining to the applicability of Article 22(2), because
that point did not arise in the proceedings before the Court in Pandit
Sharma’s case. That is why we wish to make it clear that the obiter
observations made in the majority judgment about the validity or
correctness of the earlier decision of this Court in Gunupati
Keshavram Reddy’s case should not be taken as having decided the point
in question. In other words, the question as to whether Article 22(2)
would apply to such a case may have to be considered by this Court if
and when it becomes necessary to do so.”

 

 

 

 
54. From the aforesaid decision it is clear that while exercising
jurisdiction under Article 143(1) of the Constitution this Court can
look into an earlier decision for the purpose of whether the
contentions urged in the previous decision did raise a general issue
or not; whether it was necessary to consider the larger issue that did
not arise; and whether a general proposition had been laid down. It
has also been stated that where no controversy arose with regard to
applicability of a particular facet of constitutional law, the
comments made in a decision could be treated as not accurate; and
further it could be opined that in an earlier judgment there are
certain obiter observations.

 

 

55. Thus, in Keshav Singh, a seven-Judge Bench, while entertaining a
reference under Article 143(1), dealt with a previous decision in
respect of its interpretation involving a constitutional principle in
respect of certain Articles, and proceeded to opine that the view
expressed in Sharma’s case, in relation to a proposition laid down in
Keshavram Reddy’s case, was inaccurate.

 

 

56. At this stage, it is worthy to refer to Supreme Court Advocates-on-
Record Association and Ors. Vs. Union of India[18]. J.S. Verma, J.,
(as his Lordship then was) speaking for the majority, apart from other
conclusions relating to appointment of Judges and the Chief Justices,
while dealing with transfer, expressed thus:
“(8) Consent of the transferred Judge/Chief Justice is not
required for either the first or any subsequent transfer from one High
Court to another.

 

 
(9) Any transfer made on the recommendation of the Chief Justice of
India is not to be deemed to be punitive, and such transfer is not
justiciable on any ground.
(10) In making all appointments and transfers, the norms
indicated must be followed. However, the same do not confer any
justiciable right in anyone.
(11) Only limited judicial review on the grounds specified
earlier is available in matters of appointments and transfers.”

 

 

As far as the ground of limited judicial review is concerned the majority
opined thus:
“481. These guidelines in the form of norms are not to be construed as
conferring any justiciable right in the transferred Judge. Apart from
the constitutional requirement of a transfer being made only on the
recommendation of the Chief Justice of India, the issue of transfer is
not justiciable on any other ground, including the reasons for the
transfer or their sufficiency. The opinion of the Chief Justice of
India formed in the manner indicated is sufficient safeguard and
protection against any arbitrariness or bias, as well as any erosion
of the independence of the judiciary.
482. …Except on the ground of want of consultation with the named
constitutional functionaries or lack of any condition of eligibility
in the case of an appointment, or of a transfer being made without the
recommendation of the Chief Justice of India, these matters are not
justiciable on any other ground, including that of bias, which in any
case is excluded by the element of plurality in the process of
decision-making.”

 

57. In Special Reference No. 1 of 1998, (commonly referred as the “Second
Judges Case”), question No. 2 reads as follows:
“(2) Whether the transfer of Judges is judicially reviewable in the
light of the observation of the Supreme Court in the aforesaid
judgment that ‘such transfer is not justiciable on any ground’ and its
further observation that limited judicial review is available in
matters of transfer, and the extent and scope of judicial review.”
While answering the same, the Bench opined thus:

“37. It is to our mind imperative, given the gravity involved in
transferring High Court Judges, that the Chief Justice of India should
obtain the views of the Chief Justice of the High Court from which the
proposed transfer is to be effected as also the Chief Justice of the
High Court to which the transfer is to be effected. This is in accord
with the majority judgment in the Second Judges case which postulates
consultation with the Chief Justice of another High Court. The Chief
Justice of India should also take into account the views of one or
more Supreme Court Judges who are in a position to provide material
which would assist in the process of deciding whether or not a
proposed transfer should take place. These views should be expressed
in writing and should be considered by the Chief Justice of India and
the four seniormost puisne Judges of the Supreme Court. These views
and those of each of the four seniormost puisne Judges should be
conveyed to the Government of India along with the proposal of
transfer. Unless the decision to transfer has been taken in the manner
aforestated, it is not decisive and does not bind the Government of
India.”

 

 

In the conclusion their Lordships clearly state as follows:
“1. The expression “consultation with the Chief Justice of India” in
Articles 217(1) and 222(1) of the Constitution of India requires
consultation with a plurality of Judges in the formation of the
opinion of the Chief Justice of India. The sole individual opinion of
the Chief Justice of India does not constitute “consultation” within
the meaning of the said articles.
2. The transfer of puisne Judges is judicially reviewable only to this
extent: that the recommendation that has been made by the Chief
Justice of India in this behalf has not been made in consultation with
the four seniormost puisne Judges of the Supreme Court and/or that the
views of the Chief Justice of the High Court from which the transfer
is to be effected and of the Chief Justice of the High Court to which
the transfer is to be effected have not been obtained.”

 

 

58. From the aforesaid, it is demonstrable that while entertaining the
reference under Article 143(1), this Court had analysed the principles
enunciated in the earlier judgment and also made certain
modifications. The said modifications may be stated as one of the mode
or method of inclusion by way of modification without changing the
ratio decidendi. For the purpose of validity of a reference, suffice
it to say, dwelling upon an earlier judgment is permissible. That
apart, one cannot be oblivious of the fact that the scope of limited
judicial review, in the Second Judges Case, which otherwise is quite
restricted, was slightly expanded in the Court’s opinion to the
Presidential reference.
59. It is of some interest to note that almost every reference, filed
under Article 143(1), has witnessed challenge as to its
maintainability on one ground or the other, but all the same, the
references have been answered, except in Dr. M. Ismail Faruqui & Ors.
(supra), which was returned unanswered, mainly on the ground that the
reference did not serve a constitutional purpose.
60. From the aforesaid analysis, it is quite vivid that this Court would
respectfully decline to answer a reference if it is improper,
inadvisable and undesirable; or the questions formulated have purely
socio-economic or political reasons, which have no relation whatsoever
with any of the provisions of the Constitution or otherwise are of no
constitutional significance; or are incapable of being answered; or
would not subserve any purpose; or there is authoritative
pronouncement of this Court which has already decided the question
referred.

 

 

61. In the case at hand, it is to be scrutinized whether the 2G Case is a
decision which has dealt with and decided the controversy encapsulated
in question No. 1 or meets any of the criteria mentioned above. As we
perceive, the question involves interpretation of a constitutional
principle inherent under Article 14 of the Constitution and it is of
great public importance as it deals with
allocation/alienation/disposal/ distribution of natural resources.
Besides, the question whether the 2G Case is on authoritative
pronouncement in that regard, has to be looked into and only then an
opinion can be expressed. For the said purpose all other impediments
do not remotely come into play in the present Reference.
62. We are, therefore, of the view that as long as the decision with
respect to the allocation of spectrum licenses is untouched, this
Court is within its jurisdiction to evaluate and clarify the ratio of
the judgment in the 2G Case. For the purpose of this stage of
argumentation, it needs little emphasis, that we have the jurisdiction
to clarify the ratio of the judgment in 2G Case, irrespective of
whether we actually choose to do so or not. Therefore, the fact that
this Reference may require us to say something different to 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, notwithstanding its effect on the ratio of the 2G Case,
as long as the decision in that case qua lis inter partes is left
unaffected.
ON MERITS:

63. This leads us to the merits of the controversy disclosed in the
questions framed in the Reference for our advisory opinion.

 
64. As already pointed out, the judgment in the 2G Case triggered doubts
about the validity of methods other than ‘auction’ for disposal of
natural resources which, ultimately led to the filing of the present
Reference. Therefore, before we proceed to answer question No.1, it
is imperative to understand what has been precisely stated in the 2G
Case and decipher the law declared in that case.
65. All the counsel agreed that paragraphs 94 to 96 in the said decision
are the repository of the ratio vis-à-vis disposal of natural
resources in the 2G Case. On the one hand it was argued that these
paragraphs lay down, as a proposition of law, that all natural
resources across all sectors, and in all circumstances are to be
disposed of by way of public auction, and on the other, it was urged
that the observations therein were made only qua spectrum. Before
examining the strength of the rival stands, we may briefly
recapitulate the principles that govern the determination of the ‘law
declared’ by a judgment and its true ratio.
66. Article 141 of the Constitution lays down that the ‘law declared’ by
the Supreme Court is binding upon all the courts within the territory
of India. The ‘law declared’ has to be construed as a principle of
law that emanates from a judgment, or an interpretation of a law or
judgment by the Supreme Court, upon which, the case is decided. [See:
Fida Hussain & Ors. Vs. Moradabad Development Authority & Anr.[19]].
Hence, it flows from the above that the ‘law declared’ is the
principle culled out on the reading of a judgment as a whole in light
of the questions raised, upon which the case is decided. [Also see:
Ambica Quarry Works Vs. State of Gujarat & Ors.[20] and Commissioner
of Income Tax Vs. Sun Engineering Works (P) Ltd.[21]]. In other
words, the ‘law declared’ in a judgment, which is binding upon courts,
is the ratio decidendi of the judgment. It is the essence of a
decision and the principle upon which, the case is decided, which has
to be ascertained in relation to the subject-matter of the decision.

67. Each case entails a different set of facts and a decision is a
precedent on its own facts; not everything said by a Judge while
giving a judgment can be ascribed precedental value. The essence of a
decision that binds the parties to the case is the principle upon
which the case is decided and for this reason, it is important to
analyse a decision and cull out from it, the ratio decidendi. In the
matter of applying precedents, the erudite Justice Benjamin Cardozo in
“The Nature of a Judicial Process”, had said that “if the judge is to
pronounce it wisely, some principles of selection there must be to
guide him along all potential judgments that compete for recognition”
and “almost invariably his first step is to examine and compare them;”
“it is a process of search, comparison and little more” and ought not
to be akin to matching “the colors of the case at hand against the
colors of many sample cases” because in that case “the man who had the
best card index of the cases would also be the wisest judge”. Warning
against comparing precedents with matching colours of one case with
another, he summarized the process, in case the colours don’t match,
in the following wise words:-
“It is when the colors do not match, when the references in the index
fail, when there is no decisive precedent, that the serious business
of the judge begins. He must then fashion law for the litigants
before him. In fashioning it for them, he will be fashioning it for
others. The classic statement is Bacon’s: “For many times, the things
deduced to judgment may be meum and tuum, when the reason and
consequence thereof may trench to point of estate. The sentence of
today will make the right and wrong of tomorrow.”

 

 
68. With reference to the precedential value of decisions, in State of
Orissa & Ors. Vs. Md. Illiyas[22] this Court observed:

“…According to the well-settled theory of precedents, every decision
contains three basic postulates: (i) findings of material facts,
direct and inferential. An inferential finding of facts is the
inference which the Judge draws from the direct, or perceptible facts;
(ii) statements of the principles of law applicable to the legal
problems disclosed by the facts; and (iii) judgment based on the
combined effect of the above. A decision is an authority for what it
actually decides. What is of the essence in a decision is its ratio
and not every observation found therein nor what logically flows from
the various observations made in the judgment…”

 

69. Recently, in Union of India Vs. Amrit Lal Manchanda & Anr.[23], this
Court has observed as follows:

“…Observations of courts are neither to be read as Euclid’s theorems
nor as provisions of the statute and that too taken out of their
context. These observations must be read in the context in which they
appear to have been stated. Judgments of courts are not to be
construed as statutes. To interpret words, phrases and provisions of a
statute, it may become necessary for Judges to embark into lengthy
discussions but the discussion is meant to explain and not to define.
Judges interpret statutes, they do not interpret judgments. They
interpret words of statutes; their words are not to be interpreted as
statutes.”

 
70. It is also important to read a judgment as a whole keeping in mind
that it is not an abstract academic discourse with universal
applicability, but heavily grounded in the facts and circumstances of
the case. Every part of a judgment is intricately linked to others
constituting a larger whole and thus, must be read keeping the logical
thread intact. In this regard, in Islamic Academy of Education & Anr.
Vs. State of Karnataka & Ors.[24], the Court made the following
observations:

“The ratio decidendi of a judgment has to be found out only on reading
the entire judgment. In fact, the ratio of the judgment is what is set
out in the judgment itself. The answer to the question would
necessarily have to be read in the context of what is set out in the
judgment and not in isolation. In case of any doubt as regards any
observations, reasons and principles, the other part of the judgment
has to be looked into. By reading a line here and there from the
judgment, one cannot find out the entire ratio decidendi of the
judgment.”

 

 

71. The ratio of the 2G Case must, therefore, be understood and
appreciated in light of the above guiding principles.

 
72. In the 2G Case, the Bench framed five questions. Questions No. (ii)
and (v) pertain to the factual matrix and are not relevant for
settling the controversy at hand. The remaining three questions are
reproduced below:
“(i) Whether the Government has the right to alienate, transfer or
distribute natural resources/national assets otherwise than by
following a fair and transparent method consistent with the
fundamentals of the equality clause enshrined in the Constitution?
(iii) Whether the exercise undertaken by DoT from September 2007
to March 2008 for grant of UAS licences to the private respondents in
terms of the recommendations made by TRAI is vitiated due to
arbitrariness and mala fides and is contrary to public interest?

(iv) Whether the policy of first-come-first-served followed by DoT for
grant of licences is ultra vires the provisions of Article 14 of the
Constitution and whether the said policy was arbitrarily changed by
the Minister of Communications and Information Technology (hereinafter
referred to as “the Minister of Communications and Information
Technology”), without consulting TRAI, with a view to favour some of
the applicants?”

73. While dealing with question No.(i), the Court observed that the State
is empowered to distribute natural resources as they constitute public
property/national assets. Thereafter, the Bench observed as follows:
“75.…while distributing natural resources the State is bound to act in
consonance with the principles of equality and public trust and ensure
that no action is taken which may be detrimental to public interest.
Like any other State action, constitutionalism must be reflected at
every stage of the distribution of natural resources. In Article 39(b)
of the Constitution it has been provided that the ownership and
control of the material resources of the community should be so
distributed so as to best subserve the common good, but no
comprehensive legislation has been enacted to generally define natural
resources and a framework for their protection…”
74. The learned Judges adverted to the ‘public trust doctrine’ as
enunciated in The Illinois Central Railroad Co. Vs. The People of the
State of Illinois[25]; M.C. Mehta Vs. Kamal Nath & Ors.[26]; Jamshed
Hormusji Wadia Vs. Board of Trustees, Port of Mumbai & Anr.[27];
Intellectuals Forum, Tirupathi Vs. State of A.P. & Ors.[28]; Fomento
Resorts And Hotels Limited & Anr. Vs. Minguel Martins & Ors.[29] and
Reliance Natural Resources Limited Vs. Reliance Industries Limited[30]
and held:
“85. As natural resources are public goods, the doctrine of equality,
which emerges from the concepts of justice and fairness, must guide
the State in determining the actual mechanism for distribution of
natural resources. In this regard, the doctrine of equality has two
aspects: first, it regulates the rights and obligations of the State
vis-à-vis its people and demands that the people be granted equitable
access to natural resources and/or its products and that they are
adequately compensated for the transfer of the resource to the private
domain; and second, it regulates the rights and obligations of the
State vis-à-vis private parties seeking to acquire/use the resource
and demands that the procedure adopted for distribution is just, non-
arbitrary and transparent and that it does not discriminate between
similarly placed private parties.”
Referring to the decisions of this Court in Akhil Bhartiya Upbhokta
Congress Vs. State of Madhya Pradesh & Ors.[31] and Sachidanand Pandey &
Anr. Vs. State of West Bengal & Ors.[32], the Bench ultimately concluded
thus:
“89. In conclusion, we hold that the State is the legal owner of the
natural resources as a trustee of the people and although it is
empowered to distribute the same, the process of distribution must be
guided by the constitutional principles including the doctrine of
equality and larger public good.”

 

75. On a reading of the above paragraphs, it can be noticed that the
doctrine of equality; larger public good, adoption of a transparent
and fair method, opportunity of competition; and avoidance of any
occasion to scuttle the claim of similarly situated applicants were
emphasised upon. While dealing with alienation of natural resources
like spectrum, it was stated that it is the duty of the State to
ensure that a non-discriminatory method is adopted for distribution
and alienation which would necessarily result in the protection of
national/public interest.

 
76. Paragraphs 85 and 89, while referring to the concept of ‘public trust
doctrine’, lay emphasis on the doctrine of equality, which has been
segregated into two parts – one is the substantive part and the other
is the regulatory part. In the regulatory facet, paragraph 85 states
that the procedure adopted for distribution should be just and non-
arbitrary and must be guided by constitutional principles including
the doctrine of equality and larger public good. Similarly, in
paragraph 89 stress has been laid on transparency and fair opportunity
of competition. It is further reiterated that the burden of the State
is to ensure that a non-discriminatory method is adopted for
distribution and alienation which would necessarily result in the
protection of national and public interest.

77. Dealing with Questions No.(iii) and (iv) in paragraphs 94 to 96 of the
judgment, the Court opined as follows:
“94. There is a fundamental flaw in the first-come-first-served policy
inasmuch as it involves an element of pure chance or accident. In
matters involving award of contracts or grant of licence or permission
to use public property, the invocation of first-come-first-served
policy has inherently dangerous implications. Any person who has
access to the power corridor at the highest or the lowest level may be
able to obtain information from the government files or the files of
the agency/instrumentality of the State that a particular public
property or asset is likely to be disposed of or a contract is likely
to be awarded or a licence or permission is likely to be given, he
would immediately make an application and would become entitled to
stand first in the queue at the cost of all others who may have a
better claim.
95. This Court has repeatedly held that wherever a contract is to be
awarded or a licence is to be given, the public authority must adopt a
transparent and fair method for making selections so that all eligible
persons get a fair opportunity of competition. To put it differently,
the State and its agencies/ instrumentalities must always adopt a
rational method for disposal of public property and no attempt should
be made to scuttle the claim of worthy applicants. When it comes to
alienation of scarce natural resources like spectrum, etc. it is the
burden of the State to ensure that a non-discriminatory method is
adopted for distribution and alienation, which would necessarily
result in protection of national/public interest.
96. In our view, a duly publicised auction conducted fairly and
impartially is perhaps the best method for discharging this burden and
the 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. In other words, while transferring or alienating the natural
resources, the State is duty-bound to adopt the method of auction by
giving wide publicity so that all eligible persons can participate in
the process.”

 
78. Our reading of these paragraphs suggests that the Court was not
considering the case of auction in general, but specifically
evaluating the validity of those methods adopted in the distribution
of spectrum from September 2007 to March 2008. It is also pertinent
to note that reference to auction is made in the subsequent paragraph
(96) with the rider ‘perhaps’. It has been observed that “a duly
publicized auction conducted fairly and impartially is perhaps the
best method for discharging this burden.” We are conscious that a
judgment is not to be read as a statute, but at the same time, we
cannot be oblivious to the fact that when it is argued with vehemence
that the judgment lays down auction as a constitutional principle, the
word “perhaps” gains significance. This suggests that 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 choice of the word ‘perhaps’
suggests that the learned Judges considered situations requiring a
method other than auction as conceivable and desirable.

 

 

79. Further, the final conclusions summarized in paragraph 102 of the
judgment (SCC) make no mention about auction being the only
permissible and intra vires method for disposal of natural resources;
the findings are limited to the case of spectrum. In case the Court
had actually enunciated, as a proposition of law, that auction is the
only permissible method or mode for alienation/allotment of natural
resources, the same would have found a mention in the summary at the
end of the judgment.

 

 

80. 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. While dealing with the merits of
the Reference, at a later stage, we will discuss whether or not
auction can be a constitutional mandate under Article 14 of the
Constitution, but for the present, it would suffice to say that no
court would ever implicitly, indirectly, or by inference, hold a range
of laws as ultra vires the Constitution, without allowing every law to
be tested on its merits. One of the most profound tenets of
constitutionalism is the presumption of constitutionality assigned to
each legislation enacted. We find that the 2G Case does not even
consider a plethora of laws and judgments that prescribe methods,
other than auction, for dispensation of natural resources; something
that it would have done, in case, it intended to make an assertion as
wide as applying auction to all natural resources. Therefore, we are
convinced that the observations in Paras 94 to 96 could not apply
beyond the specific case of spectrum, which according to the law
declared in the 2G Case, is to be alienated only by auction and no
other method.

 

 

81. Thus, having come to the conclusion that the 2G Case does not deal
with modes of allocation for natural resources, other than spectrum,
we shall now proceed to answer the first question of the Reference
pertaining to other natural resources, as the question subsumes the
essence of the entire reference, particularly the set of first five
questions.

 

 

82. The President seeks this Court’s opinion on the limited point of
permissibility of methods other than auction for alienation of natural
resources, other than spectrum. The question also harbours several
concepts, which were argued before us through the hearing of the
Reference, that require to be answered in order to derive a
comprehensive answer to the parent question. Are some methods ultra
vires and others intra vires the Constitution of India, especially
Article 14? Can disposal through the method of auction be elevated to
a Constitutional principle? Is this Court entitled to direct the
executive to adopt a certain method because it is the ‘best’ method?
If not, to what extent can the executive deviate from such ‘best’
method? An answer to these issues, in turn, will give an answer to
the first question which, as noted above, will answer the Presidential
Reference.

 

 

83. Before proceeding to answer these questions, we would like to dispose
of a couple of minor objections. The first pertained to the
classification of resources made in the 2G Case. Learned counsel
appearing for CPIL argued that all that the judgment in the 2G Case
has done is to carve out a special category of cases where public
auction is the only legally sustainable method of alienation viz.
natural resources that are scarce, valuable and are allotted to
private entities for commercial exploitation. The learned Attorney
General, however, contested this claim and argued that no such
proposition was laid down in the 2G judgment. He pointed out that the
words “commercial exploitation” were not even used anywhere in the
judgment except in an extract from another judgment in a different
context. We agree that the judgment itself does not carve out any
special case for scarce natural resources only meant for commercial
exploitation. However, we feel, despite that, in this Reference, CPIL
is not barred from making a submission drawing a distinction between
natural resources meant for commercial exploitation and those meant
for other purposes. This Court has the jurisdiction to classify the
subject matter of a reference, if a genuine case for it exists.
84. Mr. Shanti Bhushan, learned Senior Counsel, in support of his
stand that the first question of the Reference must be
answered in a way so as to allow auction as the only
mode for the disposal of natural resources, submitted that a
combined reading of Article 14, which dictates non- arbitrariness in
State action and equal opportunity to those similarly placed; Article
39(b) which is a Directive Principle of State Policy dealing with
distribution of natural resources for the common good of the people;
and the “trusteeship” principle found in the Preamble which mandates
that the State holds all natural resources in the capacity of a
trustee, on behalf of the people, would make auction a constitutional
mandate under Article 14 of the Constitution. It is imperative,
therefore, that we evaluate each of these principles before coming to
any conclusion on the constitutional verdict on auction.

 
85. In the 2G Case, two concepts namely, “public trust doctrine” and
“trusteeship” have been adverted to, which were also relied upon by
learned counsel for CPIL, in defence of the argument that the State
holds natural resources in a fiduciary relationship with the people.
As far as “trusteeship” is concerned, there is no cavil that the State
holds all natural resources as a trustee of the public and must deal
with them in a manner that is consistent with the nature of such a
trust. However, what was asserted on behalf of CPIL was that all
natural resources fall within the domain of the “public trust
doctrine”, and therefore, there is an obligation on the Government to
ensure that their transfer or alienation for commercial exploitation
is in a fair and transparent manner and only in pursuit of public
good. The learned Attorney General on the other hand, zealously urged
that the subject matter of the doctrine and the nature of
restrictions, it imposes, are of limited scope; that the applicability
of the doctrine is restricted to certain common properties pertaining
to the environment, like rivers, seashores, forest and air, meant for
free and unimpeded use of the general public and the restrictions it
imposes is in the term of a complete embargo on any alienation of such
resources, for private ownership. According to him, the extension of
the public trust doctrine to all natural resources has led to a
considerable confusion and needs to be clarified.

 

86. The doctrine of public trust enunciated more thoroughly by the United
States Supreme Court in Illinois (supra) was introduced to Indian
environmental jurisprudence by this Court in M.C. Mehta (supra).
Speaking for the majority, Kuldip Singh, J. observed as follows :

“25. The Public Trust Doctrine primarily rests on the principle that
certain resources like air, sea, waters and the forests have such a
great importance to the people as a whole that it would be wholly
unjustified to make them a subject of private ownership. The said
resources being a gift of nature, they should be made freely available
to everyone irrespective of the status in life. The doctrine enjoins
upon the Government to protect the resources for the enjoyment of the
general public rather than to permit their use for private ownership
or commercial purposes. According to Professor Sax the Public Trust
Doctrine imposes the following restrictions on governmental authority:
‘Three types of restrictions on governmental authority are often
thought to be imposed by the public trust: first, the property
subject to the trust must not only be used for a public purpose,
but it must be held available for use by the general public;
second, the property may not be sold, even for a fair cash
equivalent; and third the property must be maintained for
particular types of uses’.”

The learned Judge further observed:-

“34. Our legal system — based on English common law — includes the
public trust doctrine as part of its jurisprudence. The State is the
trustee of all natural resources which are by nature meant for public
use and enjoyment. Public at large is the beneficiary of the sea-
shore, running waters, airs, forests and ecologically fragile lands.
The State as a trustee is under a legal duty to protect the natural
resources. These resources meant for public use cannot be converted
into private ownership.”
87. The judgment in Kamal Nath’s case (supra) was explained in
Intellectuals Forum (supra). Reiterating that the State is the
trustee of all natural resources which are by nature meant for public
use and enjoyment, the Court observed thus:
“76. The Supreme Court of California, in National Audubon Society Vs.
Superior Court of Alpine Country also known as Mono Lake case summed
up the substance of the doctrine. The Court said:
“Thus the public trust is more than an affirmation of State
power to use public property for public purposes. It is an
affirmation of the duty of the State to protect the people’s
common heritage of streams, lakes, marshlands and tidelands,
surrendering the right only in those rare cases when the
abandonment of the right is consistent with the purposes of the
trust.”
This is an articulation of the doctrine from the angle of the
affirmative duties of the State with regard to public trust.
Formulated from a negatory angle, the doctrine does not exactly
prohibit the alienation of the property held as a public trust.
However, when the State holds a resource that is freely available for
the use of the public, it provides for a high degree of judicial
scrutiny on any action of the Government, no matter how consistent
with the existing legislations, that attempts to restrict such free
use. To properly scrutinise such actions of the Government, the courts
must make a distinction between the Government’s general obligation to
act for the public benefit, and the special, more demanding obligation
which it may have as a trustee of certain public resources…”

 
It was thus, held that when the affirmative duties are set out from a
nugatory angle, the doctrine does not exactly prohibit the alienation of
property held as a public trust, but mandates a high degree of judicial
scrutiny.

 

88. In Fomento (supra), the Court was concerned with the access of the
public to a beach in Goa. Holding that it was a public beach which
could not be privatized or blocked denying traditional access, this
Court reiterated the public trust doctrine as follows:
“52. The matter deserves to be considered from another angle. The
public trust doctrine which has been invoked by Ms Indira Jaising in
support of her argument that the beach in question is a public beach
and the appellants cannot privatise the same by blocking/ obstructing
traditional access available through Survey No. 803 (new No. 246/2) is
implicitly engrafted by the State Government in Clause 4(ix) of the
agreement. That doctrine primarily rests on the principle that certain
resources like air, sea, waters and the forests have such a great
importance to the people as a whole that it would be wholly
unjustified to make them a subject of private ownership. These
resources are gift of nature, therefore, they should be freely
available to everyone irrespective of one’s status in life.”

 
89. In Reliance Natural Resources (supra), it has been observed that even
though the doctrine of pubic trust has been applied in cases dealing
with environmental jurisprudence, “it has broader application”.
Referring to Kamal Nath (supra), the Court held that it is the duty of
the Government to provide complete protection to the natural resources
as a trustee of the people at large.

 

90. The public trust doctrine is a specific doctrine with a particular
domain and has to be applied carefully. It has been seriously debated
before us as to whether the doctrine can be applied beyond the realm
of environmental protection. Richard J. Lazarus in his article,
“Changing Conceptions of Property and Sovereignty in Natural
Resources: Questioning the Public Trust Doctrine”, while expressing
scepticism over the ‘liberation’ of the doctrine, makes the following
observations:-
“The strength of the public trust doctrine necessarily lies in its
origins; navigable waters and submerged lands are the focus of the
doctrine, and the basic trust interests in navigation, commerce, and
fishing are the object of its guarantee of public access.
Commentators and judges alike have made efforts to “liberate”,
“expand”, and “modify” the doctrine’s scope yet its basic focus
remains relatively unchanged. Courts still repeatedly return to the
doctrine’s historical function to determine its present role. When
the doctrine is expanded, more often than not the expansions require
tortured constructions of the present rather than repudiations of the
doctrine’s past.”

 

 

 

However, we feel that for the purpose of the present opinion, it is not
necessary to delve deep into the issue as in Intellectuals Forum (supra),
the main departure from the principle explained by Joseph. L. Sax in his
Article “The Public Trust Doctrine in Natural Resource Law: Effective
Judicial Intervention” is that public trust mandates a high degree of
judicial scrutiny, an issue that we will anyway elaborately discuss while
enunciating the mandate of Article 14 of the Constitution.

 
91. We would also like to briskly deal with a similar argument made by Mr.
Shanti Bhushan. The learned senior counsel submitted that the
repository of sovereignty in our framework is the people of this
country since the opening words of the Constitution read “We The
People of India… do hereby adopt, enact and give to ourselves this
Constitution,” and therefore the government, as the agent of the
Sovereign, the people, while alienating natural resources, must heed
to judicial care and due process. Firstly, this Court has held in
Raja Ram Pal Vs. Hon’ble Speaker, Lok Sabha & Ors.[33] that the
“Constitution is the supreme lex in this country” and “all organs of
the State derive their authority, jurisdiction and powers from the
Constitution and owe allegiance to it”. Further, the notion that the
Parliament is an agent of the people was squarely rebutted in In Re:
Delhi Laws Act, 1912 (supra), where it was observed that “the
legislature as a body cannot be seen to be an agency of the electorate
as a whole” and “acts on its own authority or power which it derives
from the Constitution”.

 
92. In Municipal Corporation of Delhi Vs. Birla Cotton, Spinning and
Weaving Mills, Delhi & Anr.[34] this Court held that “the doctrine
that it (the Parliament) is a delegate of the people coloured certain
American decision does not arise here” and that in fact the
“Parliament which by a concentration of all the powers of legislation
derived from all the three Legislative Lists becomes the most
competent and potent legislature it is possible to erect under our
Constitution.” We however, appreciate the concern of Mr. Shanti
Bhushan that the lack of any such power in the hands of the people
must not be a sanction for recklessness during disposal of natural
resources. The legislature and the Executive are answerable to the
Constitution and it is there where the judiciary, the guardian of the
Constitution, must find the contours to the powers of disposal of
natural resources, especially Article 14 and Article 39(b).

 

 

MANDATE OF ARTICLE 14:
93. Article 14 runs as follows:

“14. Equality before law. – The State shall not deny to any person
equality before the law or the equal protection of the laws within the
territory of India.”

 

 

 

94. The underlying object of Article 14 is to secure to all persons,
citizens or non-citizens, the equality of status and opportunity
referred to in the preamble to our Constitution. The language of
Article 14 is couched in negative terms and is in form, an admonition
addressed to the State. It does not directly purport to confer any
right on any person as some of the other Articles, e.g., Article 19,
do. The right to equality before law is secured from all legislative
and executive tyranny by way of discrimination since the language of
Article 14 uses the word “State” which as per Article 12, includes the
executive organ. [See: Basheshar Nath Vs. The Commissioner of Income
Tax, Delhi & Rajasthan & Anr.[35]]. Besides, Article 14 is expressed
in absolute terms and its effect is not curtailed by restrictions like
those imposed on Article 19(1) by Articles 19(2)-(6). However,
notwithstanding the absence of such restrictions, certain tests have
been devised through judicial decisions to test if Article 14 has been
violated or not.

 
95. For the first couple of decades after the establishment of this Court,
the ‘classification’ test was adopted which allowed for a
classification between entities as long as it was based on an
intelligible differentia and displayed a rational nexus with the
ultimate objective of the policy. Budhan Choudhry & Ors. Vs. State of
Bihar[36] referred to in Shri Ram Krishna Dalmiya Vs. Shri Justice
S.R. Tendolkar and Ors.[37] explained it in the following terms:

“It is now well established that while article 14 forbids class
legislation, it does not forbid reasonable classification for the
purposes of legislation. In order, however, to pass the test of
permissible classification two conditions must be fulfilled, namely,
(i) that the classification must be founded on an intelligible
differentia which distinguishes persons or things that are grouped
together from others left out of the group and, (ii) that that
differentia must have a rational relation to the object sought to be
achieved by the statute in question. The classification may be founded
on different bases, namely, geographical, or according to objects or
occupations or the like. What is necessary is that there must be a
nexus between the basis of classification and the object of the Act
under consideration. It is also well established by the decisions of
this Court that article 14 condemns discrimination not only by a
substantive law but also by a law of procedure.”

 

 

96. However, after the judgment of this Court in E.P. Royappa Vs. State of
Tamil Nadu & Anr[38] the ‘arbitrariness’ doctrine was introduced which
dropped a pedantic approach towards equality and held the mere
existence of arbitrariness as violative of Article 14, however equal
in its treatment. Justice Bhagwati (as his Lordship was then)
articulated the dynamic nature of equality and borrowing from
Shakespeare’s Macbeth, said that the concept must not be “cribbed,
cabined and confined” within doctrinaire limits: –

“85. …Now, what is the content and reach of this great equalising
principle? It is a founding faith, to use the words of Bose. J., “a
way of life”, and it must not be subjected to a narrow pedantic or
lexicographic approach. We cannot countenance any attempt to truncate
its all-embracing scope and meaning, for to do so would be to violate
its activist magnitude. Equality is a dynamic concept with many
aspects and dimensions and it cannot be “cribbed, cabined and
confined” within traditional and doctrinaire limits.”

 
His Lordship went on to explain the length and breadth of Article 14 in the
following lucid words:
“85… From a positivistic point of view, equality is antithetic to
arbitrariness. In fact equality and arbitrariness are sworn enemies;
one belongs to the rule of law in a republic while the other, to the
whim and caprice of an absolute monarch. Where an act is arbitrary, it
is implicit in it that it is unequal both according to political logic
and constitutional law and is therefore violative of Article 14, and
if it effects any matter relating to public employment, it is also
violative of Article 16. Articles 14 and 16 strike at arbitrariness in
State action and ensure fairness and equality of treatment. They
require that State action must be based on valid relevant principles
applicable alike to all similarly situate and it must not be guided by
any extraneous or irrelevant considerations because that would be
denial of equality. Where the operative reason for State action, as
distinguished from motive inducing from the antechamber of the mind,
is not legitimate and relevant but is extraneous and outside the area
of permissible considerations, it would amount to mala fide exercise
of power and that is hit by Articles 14 and 16. Mala fide exercise of
power and arbitrariness are different lethal radiations emanating from
the same vice: in fact the latter comprehends the former. Both are
inhibited by Articles 14 and 16.”

97. Building upon his opinion delivered in Royappa’s case (supra),
Bhagwati, J., held in Maneka Gandhi Vs. Union of India & Anr.[39]:

“The principle of reasonableness, which legally as well as
philosophically, is an essential element of equality or non-
arbitrariness pervades Article 14 like a brooding omnipresence and the
procedure contemplated by Article 21 must answer the test of
reasonableness in order to be in conformity with Article 14. It must
be “right and just and fair” and not arbitrary, fanciful or
oppressive.”
98. In Ajay Hasia & Ors. Vs. Khalid Mujib Sehravardi & Ors.[40], this
Court said that the ‘arbitrariness’ test was lying “latent and
submerged” in the “simple but pregnant” form of Article 14 and
explained the switch from the ‘classification’ doctrine to the
‘arbitrariness’ doctrine in the following words:
“16…The doctrine of classification which is evolved by the courts is
not paraphrase of Article 14 nor is it the objective and end of that
article. It is merely a judicial formula for determining whether the
legislative or executive action in question is arbitrary and therefore
constituting denial of equality. If the classification is not
reasonable and does not satisfy the two conditions referred to above,
the impugned legislative or executive action would plainly be
arbitrary and the guarantee of equality under Article 14 would be
breached. Wherever therefore there is arbitrariness in State action
whether it be of the legislature or of the executive or of an
‘authority’ under Article 12, Article 14 immediately springs into
action and strikes down such State action. In fact, the concept of
reasonableness and non-arbitrariness pervades the entire
constitutional scheme and is a golden thread which runs through the
whole of the fabric of the Constitution.”

 

99. Ramana Dayaram Shetty Vs. International Airport Authority of India &
Ors.[41] explained the limitations of Article 14 on the functioning
of the Government as follows: –
“12…It must, therefore, be taken to be the law that where the
Government is dealing with the public, whether by way of giving jobs
or entering into contracts or issuing quotas or licences or granting
other forms of largesse, the Government cannot act arbitrarily at its
sweet will and, like a private individual, deal with any person it
pleases, but its action must be in conformity with standard or norms
which is not arbitrary, irrational or irrelevant. The power or
discretion of the Government in the matter of grant of largesse
including award of jobs, contracts, quotas, licences, etc. must be
confined and structured by rational, relevant and non-discriminatory
standard or norm and if the Government departs from such standard or
norm in any particular case or cases, the action of the Government
would be liable to be struck down, unless it can be shown by the
Government that the departure was not arbitrary, but was based on some
valid principle which in itself was not irrational, unreasonable or
discriminatory.”

 

100. Equality and arbitrariness were thus, declared “sworn enemies” and
it was held that an arbitrary act would fall foul of the right to
equality. Non-arbitrariness was equated with the rule of law about
which Jeffrey Jowell in his seminal article “The Rule of Law Today”
said: –
“Rule of law principle primarily applies to the power of
implementation. It mainly represents a state of procedural fairness.
When the rule of law is ignored by an official it may on occasion be
enforced by courts.”

 

 

101. As is evident from the above, the expressions ‘arbitrariness’ and
‘unreasonableness’ have been used interchangeably and in fact, one
has been defined in terms of the other. More recently, in Sharma
Transport Vs. Government of A.P. & Ors.[42], this Court has
observed thus:
“25…In order to be described as arbitrary, it must be shown that it
was not reasonable and manifestly arbitrary. The expression
“arbitrarily” means: in an unreasonable manner, as fixed or done
capriciously or at pleasure, without adequate determining principle,
not founded in the nature of things, non-rational, not done or acting
according to reason or judgment, depending on the will alone.”

 

 

 
102. Further, even though the ‘classification’ doctrine was never
overruled, it has found less favour with this Court as compared to the
‘arbitrariness’ doctrine. In Om Kumar & Ors. Vs. Union of India[43],
this Court held thus:
“59. But, in E.P. Royappa v. State of T. N. Bhagwati, J laid down
another test for purposes of Article 14. It was stated that if the
administrative action was “arbitrary”, it could be struck down under
Article 14. This principle is now uniformly followed in all courts
more rigorously than the one based on classification. Arbitrary action
by the administrator is described as one that is irrational and not
based on sound reason. It is also described as one that is
unreasonable.”
103. However, this Court has also alerted against the arbitrary use of the
‘arbitrariness’ doctrine. Typically, laws are struck down for
violating Part III of the Constitution of India, legislative
incompetence or excessive delegation. However, since Royappa’s case
(supra), the doctrine has been loosely applied. This Court in State of
A.P. & Ors. Vs. McDowell & Co. & Ors.[44] stressed on the need for an
objective and scientific analysis of arbitrariness, especially while
striking down legislations. Justice Jeevan Reddy observed:

“43…The power of Parliament or for that matter, the State Legislatures
is restricted in two ways. A law made by Parliament or the
legislature can be struck down by courts on two grounds and two
grounds alone, viz., (1) lack of legislative competence and (2)
violation of any of the fundamental rights guaranteed in Part III of
the Constitution or of any other constitutional provision. There is no
third ground. We do not wish to enter into a discussion of the
concepts of procedural unreasonableness and substantive
unreasonableness — concepts inspired by the decisions of United States
Supreme Court. Even in U.S.A., these concepts and in particular the
concept of substantive due process have proved to be of unending
controversy, the latest thinking tending towards a severe curtailment
of this ground (substantive due process). The main criticism against
the ground of substantive due process being that it seeks to set up
the courts as arbiters of the wisdom of the legislature in enacting
the particular piece of legislation. It is enough for us to say that
by whatever name it is characterised, the ground of invalidation must
fall within the four corners of the two grounds mentioned above. In
other words, say, if an enactment is challenged as violative of
Article 14, it can be struck down only if it is found that it is
violative of the equality clause/equal protection clause enshrined
therein. Similarly, if an enactment is challenged as violative of any
of the fundamental rights guaranteed by clauses (a) to (g) of Article
19(1), it can be struck down only if it is found not saved by any of
the clauses (s) to (6) of Article 19 and so on. No enactment can be
struck down by just saying that it is arbitrary** or unreasonable.
Some or other constitutional infirmity has to be found before
invalidating an Act. An enactment cannot be struck down on the ground
that court thinks it unjustified. Parliament and the legislatures,
composed as they are of the representatives of the people, are
supposed to know and be aware of the needs of the people and what is
good and bad for them. The court cannot sit in judgment over their
wisdom. In this connection, it should be remembered that even in the
case of administrative action, the scope of judicial review is limited
to three grounds, viz., (i) unreasonableness, which can more
appropriately be called irrationality, (ii) illegality and (iii)
procedural impropriety (see Council of Civil Service Unions v.
Minister for Civil Service which decision has been accepted by this
Court as well).
**An expression used widely and rather indiscriminately — an
expression of inherently imprecise import. The extensive use of this
expression in India reminds one of what Frankfurter, J said in Hattie
Mae Tiller v. Atlantic Coast Line Railroad Co., 87 L ED 610 : 318 US
54 (1943). “The phrase begins life as a literary expression; its
felicity leads to its lazy repetition and repetition soon establishes
it as a legal formula, undiscriminatingly used to express different
and sometimes contradictory ideas”, said the learned Judge.”

 

 
104. Therefore, ever since the Royappa era, the conception of
‘arbitrariness’ has not undergone any significant change. Some
decisions have commented on the doctrinal looseness of the
arbitrariness test and tried keeping its folds within permissible
boundaries. For instance, cases where legislation or rules have been
struck down as being arbitrary in the sense of being unreasonable
[See: Air India Vs. Nergesh Meerza[45] (SCC at pp. 372-373)] only on
the basis of “arbitrariness”, as explained above, have been doubted in
McDowell’s case (supra). But otherwise, the subject matter, content
and tests for checking violation of Article 14 have remained, more or
less, unaltered.
105. From a scrutiny of the trend of decisions it is clearly perceivable
that the action of the State, whether it relates to distribution of
largesse, grant of contracts or allotment of land, is to be tested on
the touchstone of Article 14 of the Constitution. A law may not be
struck down for being arbitrary without the pointing out of a
constitutional infirmity as McDowell’s case (supra) has said.
Therefore, a State action has to be tested for constitutional
infirmities qua Article 14 of the Constitution. The 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 with reasons and guided by public
interest, etc. All these principles are inherent in the fundamental
conception of Article 14. This is the mandate of Article 14 of the
Constitution of India.

 
WHETHER ‘AUCTION’ A CONSTITUTIONAL MANDATE:

106. 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 of the
Constitution of India? We would unhesitatingly answer it in the
negative since any other answer would be completely contrary to the
scheme of Article 14. Firstly, Article 14 may imply positive and
negative rights for an individual, but with respect to the State, it
is only couched in negative terms; like an admonition against the
State which prohibits the State from taking up actions that may be
arbitrary, unreasonable, capricious or discriminatory. Article 14,
therefore, is an injunction to the State against taking certain type
of actions rather than commanding it to take particular steps. Reading
the mandate of auction into its scheme would thus, be completely
contrary to the intent of the Article apparent from its plain
language.

 

107. Secondly, a constitutional mandate is an absolute principle that has
to be applied in all situations; it cannot be applied in some and not
tested in others. The absolute principle is then applied on a case by
case basis to see which actions fulfill the requirements of the
constitutional principle and which do not.

 

108. Justice K. Subba Rao in his lectures compiled in a book titled “Some
Constitutional Problems”, critically analyzing the trends of Indian
constitutional development, stated as follows:
“If the Courts, instead of limiting the scope of the articles by
construction, exercise their jurisdiction in appropriate cases, I have
no doubt that the arbitrariness of the authorities will be minimised.
If these authorities entrusted with the discretionary powers, realize
that their illegal orders infringing the rights of the people would be
quashed by the appropriate authority, they would rarely pass orders in
excess of their powers. If they knew that not only the form but the
substance of the orders would be scrutinized in open court, they would
try to keep within their bounds. The fear of ventilation of grievance
in public has always been an effective deterrent. The apprehension
that the High Courts would be swamped with writs has no basis.”
109. Similar sentiments were expressed by Justice K. K. Mathew in series of
lectures incorporated in the form of a book titled “Democracy,
Equality and Freedom” in which it is stated that “the strength of
judicial review lies in case to case adjudication.” This is precisely
why this Court in His Holiness Kesavananda Bharti Sripadagalvaru Vs.
State of Kerala & Anr.[46] quoting from an American decision, observed
as follows:
“1695…The reason why the expression “due process” has never been
defined is that it embodies a concept of fairness which has to be
decided with reference to the facts and circumstances of each case and
also according to the mores for the time being in force in a society
to which the concept has to be applied. As Justice Frankfurter said,
“due process” is not a technical conception with a fixed content
unrelated to time, place and circumstances [See Joint Anti-Fascist
Refugee Committee v. McGrath 341 U.S. 123]”.

110. Equality, therefore, cannot be limited to mean only auction, without
testing it in every scenario. In The State of West Bengal Vs. Anwar
Ali Sarkar[47], this Court, quoting from Kotch Vs. Pilot Comm’rs[48] ,
had held that “the constitutional command for a State to afford equal
protection of the laws sets a goal not attainable by the invention and
application of a precise formula. This Court has never attempted that
impossible task”. One cannot test the validity of a law with reference
to the essential elements of ideal democracy, actually incorporated in
the Constitution. (See: Indira Nehru Gandhi Vs. Raj Narain[49]). The
Courts are not at liberty to declare a statute void, because in their
opinion it is opposed to the spirit of the Constitution. Courts
cannot declare a limitation or constitutional requirement under the
notion of having discovered some ideal norm. Further, a
constitutional principle must not be limited to a precise formula but
ought to be an abstract principle applied to precise situations. The
repercussion of holding auction as a constitutional mandate would be
the voiding of every action that deviates from it, including social
endeavours, welfare schemes and promotional policies, even though CPIL
itself has argued against the same, and asked for making auction
mandatory only in the alienation of scarce natural resources meant for
private and commercial business ventures. It would be odd to derive
auction as a constitutional principle only for a limited set of
situations from the wide and generic declaration of Article 14. The
strength of constitutional adjudication lies in case to case
adjudication and therefore auction cannot be elevated to a
constitutional mandate.
111. Finally, reading auction as a constitutional mandate would be
impermissible because such an approach may distort another
constitutional principle embodied in Article 39(b). The said article
enumerating certain principles of policy, to be followed by the State,
reads as follows:

“The State shall, in particular, direct its policy towards securing –

 
a) … … …

b) that the ownership and control of the material resources of
the community are so distributed as best to subserve the
common good;
… … …”

 

The disposal of natural resources is a facet of the use and distribution of
such resources. Article 39(b) mandates that the ownership and control of
natural resources should be so distributed so as to best subserve the
common good. Article 37 provides that the provisions of Part IV shall not
be enforceable by any Court, but the principles laid down therein are
nevertheless fundamental in the governance of the country and it shall be
the duty of the State to apply these principles in making laws.

 

112. Therefore, this Article, in a sense, is a restriction on
‘distribution’ built into the Constitution. But the restriction is
imposed on the object and not the means. The overarching and
underlying principle governing ‘distribution’ is furtherance of common
good. But for the achievement of that objective, the Constitution uses
the generic word ‘distribution’. Distribution has broad contours and
cannot be limited to meaning only one method i.e. auction. It
envisages all such methods available for distribution/allocation of
natural resources which ultimately subserve the “common good”.

 

113. In State of Tamil Nadu & Ors. Vs. L. Abu Kavur Bai & Ors.[50], this
Court explained the broad-based concept of ‘distribution’ as follows:

“89. …The word ‘distribution’ used in Article 39(b) must be broadly
construed so that a court may give full and comprehensive effect to
the statutory intent contained in Article 39 (b). A narrow
construction of the word ‘distribution’ might defeat or frustrate the
very object which the Article seeks to subserve…”

 

 

114. After noting definitions of ‘distribution’ from different
dictionaries, this Court held:

“92. It is obvious, therefore, that in view of the vast range of
transactions contemplated by the word ‘distribution’ as mentioned in
the dictionaries referred to above, it will not be correct to construe
the word ‘distribution’ in a purely literal sense so as to mean only
division of a particular kind or to particular persons. The words,
apportionment, allotment, allocation, classification, clearly fall
within the broad sweep of the word ‘distribution’. So construed, the
word ‘distribution’ as used in Article 39(b) will include various
facets, aspects, methods and terminology of a broad-based concept of
distribution…”

 

115. It can thus, be seen from the afore-quoted paragraphs that the term
“distribute” undoubtedly, has wide amplitude and encompasses all
manners and methods of distribution, which would include classes,
industries, regions, private and public sections, etc. Having regard
to the basic nature of Article 39(b), a narrower concept of equality
under Article 14 than that discussed above, may frustrate the broader
concept of distribution, as conceived in Article 39(b). There cannot,
therefore, be a cavil that “common good’ and “larger public interests”
have to be regarded as constitutional reality deserving actualization.
116. Learned counsel for CPIL argued that revenue maximization during the
sale or alienation of a natural resource for commercial exploitation
is the only way of achieving public good since the revenue collected
can be channelized to welfare policies and controlling the burgeoning
deficit. According to the learned counsel, since the best way to
maximize revenue is through the route of auction, it becomes a
constitutional principle even under Article 39(b). However, we are not
persuaded to hold so. Auctions may be the best way of maximizing
revenue but revenue maximization may not always be the best way to
subserve public good. “Common good” is the sole guiding factor under
Article 39(b) for distribution of natural resources. It is the
touchstone of testing whether any policy subserves the “common good”
and if it does, irrespective of the means adopted, it is clearly in
accordance with the principle enshrined in Article 39(b).

 
117. In The State of Karnataka and Anr. Vs. Shri Ranganatha Reddy and
Anr.[51], Justice Krishna Iyer observed that keeping in mind the
purpose of an Article like 39(b), a broad rather than a narrow meaning
should be given to the words of that Article. In his inimitable
style, his Lordship opined thus:

“83. Two conclusions strike us as quintessential. Part IV, especially
Article 39(b) and (c), is a futuristic mandate to the state with a
message of transformation of the economic and social order. Firstly,
such change calls for collaborative effort from all the legal
institutions of the system: the legislature, the judiciary and the
administrative machinery. Secondly and consequentially, loyalty to the
high purpose of the Constitution, viz., social and economic justice in
the context of material want and utter inequalities on a massive
scale, compels the court to ascribe expansive meaning to the pregnant
words used with hopeful foresight, not to circumscribe their
connotation into contradiction of the objectives inspiring the
provision. To be Pharisaic towards the Constitution through
ritualistic construction is to weaken the social-spiritual thrust of
the founding fathers’ dynamic faith.”

 

 

 

118. In the case of Bennett Coleman & Co. and Ors. Vs. Union of India and
Ors[52]., it has been held by this Court that “the only norm which the
Constitution furnishes for distribution of material resources of the
community is elastic norm of common good.” Thus “common good” is a
norm in Article 39(b) whose applicability was considered by this Court
on the facts of the case. Even in that case, this Court did not evolve
economic criteria of its own to achieve the goal of “common good” in
Article 39(b), which is part of the Directive Principles.
119. The norm of “common good” has to be understood and appreciated in a
holistic manner. It is obvious that the manner in which the common
good is best subserved is not a matter that can be measured by any
constitutional yardstick – it would depend on the economic and
political philosophy of the government. Revenue maximization is not
the only way in which the common good can be subserved. Where revenue
maximization 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 maximization 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.

 

120. Therefore, in conclusion, the submission that the mandate of Article
14 is that any disposal of a natural resource for commercial use must
be for revenue maximization, and thus by auction, is based neither on
law nor on logic. There is no constitutional imperative in the matter
of economic policies- Article 14 does not pre-define any economic
policy as a constitutional mandate. Even the mandate of 39(b) imposes
no restrictions on the means adopted to subserve the public good and
uses the broad term ‘distribution’, suggesting that the methodology of
distribution is not fixed. Economic logic establishes that
alienation/allocation of natural resources to the highest bidder may
not necessarily be the only way to subserve 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.

 

Legitimate Deviations from Auction

121. As a result, this Court has, on a number of occasions, delivered
judgments directing means for disposal of natural resources other than
auction for different resources in different circumstances. It would
be profitable to refer to a few cases and appreciate the reasons this
Court has adopted for deviating from the method of auction.

 

122. In M/s Kasturi Lal Lakshmi Reddy Vs. State of Jammu & Kashmir &
Anr.[53], while comparing the efficacy of auction in promoting a
domestic industry, P.N. Bhagwati, J. observed: –

“22. …If the State were giving tapping contract simpliciter there
can be no doubt that the State would have to auction or invite
tenders for securing the highest price, subject, of course, to any
other relevant overriding considerations of public weal or interest,
but in a case like this where the State is allocating resources such
as water, power, raw materials etc. for the purpose of encouraging
setting up of industries within the State, we do not think the State
is bound to advertise and tell the people that it wants a particular
industry to be set up within the State and invite those interested
to come up with proposals for the purpose. The State may choose to
do so, if it thinks fit and in a given situation, it may even turn
out to be advantageous for the State to do so, but if any private
party comes before the State and offers to set up an industry, the
State would not be committing breach of any constitutional or legal
obligation if it negotiates with such party and agrees to provide
resources and other facilities for the purpose of setting up the
industry. The State is not obliged to tell such party: “Please wait
I will first advertise, wee whether any other offers are forthcoming
and then after considering all offers, decide whether I should let
you set up the industry”…The State must be free in such a case to
negotiate with a private entrepreneur with a view to inducing him to
set up an industry within the State and if the State enters into a
contract with such entrepreneur for providing resources and other
facilities for setting up an industry, the contract cannot be
assailed as invalid so long as the State has acted bona fide,
reasonably and in public interest. If the terms and conditions of
the contract or the surrounding circumstances show that the State
has acted mala fide or out of improper or corrupt motive or in order
to promote the private interests of someone at the cost of the
State, the court will undoubtedly interfere and strike down State
action as arbitrary, unreasonable or contrary to public interest.
But so long as the State action is bona fide and reasonable, the
court will not interfere merely on the ground that no advertisement
was given or publicity made or tenders invited.”

 

123. In Sachidanand Pandey (supra) after noticing Kasturi Lal’s case
(supra), it was concluded as under:

“40. On a consideration of the relevant cases cited at the Bar the
following propositions may be taken as well established: State-
owned or public-owned property is not to be dealt with at the
absolute discretion of the executive. Certain precepts and
principles have to be observed. Public interest is the paramount
consideration. One of the methods of securing the public interest,
when it is considered necessary to dispose of a property, is to
sell the property by public auction or by inviting tenders. Though
that is the ordinary rule, it is not an invariable rule. There may
be situations where there are compelling reasons necessitating
departure from the rule but then the reasons for the departure must
be rational and should not be suggestive of discrimination.
Appearance of public justice is as important as doing justice.
Nothing should be done which gives an appearance of bias, jobbery
or nepotism.”

124. In Haji T.M. Hassan Rawther Vs. Kerala Financial Corpn.[54], after an
exhaustive review of the law including the decisions in Kasturi Lal
(supra) and Sachidanand Pandey (supra), it was held that public
disposal of State owned properties is not the only rule. It was,
inter-alia, observed that:

“14. The public property owned by the State or by any instrumentality
of the State should be generally sold by public auction or by inviting
tenders. This Court has been insisting upon that rule, not only to get
the highest price for the property but also to ensure fairness in the
activities of the State and public authorities. They should
undoubtedly act fairly. Their actions should be legitimate. Their
dealings should be aboveboard. Their transactions should be without
aversion or affection. Nothing should be suggestive of discrimination.
Nothing should be done by them which gives an impression of bias,
favouritism or nepotism. Ordinarily these factors would be absent if
the matter is brought to public auction or sale by tenders. That is
why the court repeatedly stated and reiterated that the State-owned
properties are required to be disposed of publicly. But that is not
the only rule. As O. Chinnappa Reddy, J. observed “that though that is
the ordinary rule, it is not an invariable rule”. There may be
situations necessitating departure from the rule, but then such
instances must be justified by compulsions and not by compromise. It
must be justified by compelling reasons and not by just convenience.”
Here, the Court added to the previous decisions and said that a blithe
deviation from public disposal of resources would not be tolerable; such a
deviation must be justified by compelling reasons and not by just
convenience.

125. In M.P. Oil Extraction and Anr. Vs. State of M.P. & Ors.[55], this
Court held as follows:
“45. Although to ensure fair play and transparency in State action,
distribution of largesse by inviting open tenders or by public auction
is desirable, it cannot be held that in no case distribution of such
largesse by negotiation is permissible. In the instant case, as a
policy decision protective measure by entering into agreements with
selected industrial units for assured supply of sal seeds at
concessional rate has been taken by the Government. The rate of
royalty has also been fixed on some accepted principle of pricing
formula as will be indicated hereafter. Hence, distribution or
allotment of sal seeds at the determined royalty to the respondents
and other units covered by the agreements cannot be assailed. It is to
be appreciated that in this case, distribution by public auction or by
open tender may not achieve the purpose of the policy of protective
measure by way of supply of sal seeds at concessional rate of royalty
to the industrial units covered by the agreements on being selected on
valid and objective considerations.”

126. In Netai Bag & Ors. Vs. State of W.B. & Ors.[56], this Court observed
that non- floating of tenders or not holding of public auction would,
not in all cases, be deemed to be the result of the exercise of the
executive power in an arbitrary manner. It was stated:
“19. …There cannot be any dispute with the proposition that generally
when any State land is intended to be transferred or the State
largesse decided to be conferred, resort should be had to public
auction or transfer by way of inviting tenders from the people. That
would be a sure method of guaranteeing compliance with the mandate of
Article 14 of the Constitution. Non-floating of tenders or not holding
of public auction would not in all cases be deemed to be the result of
the exercise of the executive power in an arbitrary manner. Making an
exception to the general rule could be justified by the State
executive, if challenged in appropriate proceedings. The
constitutional courts cannot be expected to presume the alleged
irregularities, illegalities or unconstitutionality nor the courts can
substitute their opinion for the bona fide opinion of the State
executive. The courts are not concerned with the ultimate decision but
only with the fairness of the decision-making process.
This Court once again pointed out that there can be exceptions from
auction; the ultimate test is only that of fairness of the decision making
process and compliance with Article 14 of the Constitution.

127. In M & T Consultants, Secunderabad Vs. S.Y. Nawab[57], this Court
again reiterated that non- floating of tenders does not always lead to
the conclusion that the exercise of the power is arbitrary:
“17. A careful and dispassionate assessment and consideration of the
materials placed on record does not leave any reasonable impression,
on the peculiar facts and circumstances of this case, that anything
obnoxious which requires either public criticism or condemnation by
courts of law had taken place. It is by now well settled that non-
floating of tenders or absence of public auction or invitation alone
is no sufficient reason to castigate the move or an action of a
public authority as either arbitrary or unreasonable or amounting to
mala fide or improper exercise or improper abuse of power by the
authority concerned. Courts have always leaned in favour of
sufficient latitude being left with the authorities to adopt their
own techniques of management of projects with concomitant economic
expediencies depending upon the exigencies of a situation guided by
appropriate financial policy in the best interests of the authority
motivated by public interest as well in undertaking such ventures.”

 
128. In Villianur Iyarkkai Padukappu Maiyam Vs. Union of India & Ors.[58],
a three Judge Bench of this Court was concerned with the development
of the Port of Pondicherry where a contractor had been selected
without floating a tender or holding public auction. It was held as
under:
“164. The plea raised by the learned counsel for the appellants
that the Government of Pondicherry was arbitrary and unreasonable
in switching the whole public tender process into a system of
personal selection and, therefore, the appeals should be accepted,
is devoid of merits. It is well settled that non-floating of
tenders or not holding of public auction would not in all cases be
deemed to be the result of the exercise of the executive power in
an arbitrary manner.
171. In a case like this where the State is allocating resources
such as water, power, raw materials, etc. for the purpose of
encouraging development of the port, this Court does not think that
the State is bound to advertise and tell the people that it wants
development of the port in a particular manner and invite those
interested to come up with proposals for the purpose. The State may
choose to do so if it thinks fit and in a given situation it may
turn out to be advantageous for the State to do so, but if any
private party comes before the State and offers to develop the
port, the State would not be committing breach of any
constitutional obligation if it negotiates with such a party and
agrees to provide resources and other facilities for the purpose of
development of the port.”
129. Hence, 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. The judiciary tests such deviations on the
limited scope of arbitrariness and fairness under Article 14 and its
role is limited to that extent. Essentially whenever the object of
policy is anything but revenue maximization, the Executive is seen to
adopt methods other than auction.

 

130. A fortiori, besides legal logic, mandatory auction may be contrary to
economic logic as well. Different resources may require different
treatment. Very often, exploration and exploitation contracts are
bundled together due to the requirement of heavy capital in the
discovery of natural resources. A concern would risk undertaking such
exploration and incur heavy costs only if it was assured utilization
of the resource discovered; a prudent business venture, would not like
to incur the high costs involved in exploration activities and then
compete for that resource in an open auction. The logic is similar to
that applied in patents. Firms are given incentives to invest in
research and development with the promise of exclusive access to the
market for the sale of that invention. Such an approach is
economically and legally sound and sometimes necessary to spur
research and development. Similarly, bundling exploration and
exploitation contracts may be necessary to spur growth in a specific
industry.

 

131. Similar deviation from auction cannot be ruled out when the object of
a State policy is to promote domestic development of an industry, like
in Kasturi Lal’s case, discussed above. However, these examples are
purely illustrative in order to demonstrate that auction cannot be the
sole criteria for alienation of all natural resources.

Potential of Abuse
132. It was also argued that even if the method of auction is not a mandate
under Article 14, it must be the only permissible method, due to the
susceptibility of other methods to abuse. This argument, in our view,
is contrary to an established position of law on the subject cemented
through a catena of decisions.

 
133. In R.K. Garg Vs. Union of India & Ors.[59], Justice P. N. Bhagwati,
speaking for a Constitution Bench of five learned Judges, held:
“8.…The Court must always remember that “legislation is directed to
practical problems, that the economic mechanism is highly sensitive
and complex, that many problems are singular and contingent, that laws
are not abstract propositions and do not relate to abstract units and
are not to be measured by abstract symmetry”; “that exact wisdom and
nice adaption of remedy are not always possible” and that “judgment is
largely a prophecy based on meager and uninterpreted experience”.
Every legislation particularly in economic matters is essentially
empiric and it is based on experimentation or what one may call trial
and error method and therefore it cannot provide for all possible
situations or anticipate all possible abuses. There may be crudities
and inequities in complicated experimental economic legislation but on
that account alone it cannot be struck down as invalid. The courts
cannot, as pointed out by the United States Supreme Court in Secretary
of Agriculture v. Central Reig Refining Company[60] be converted into
tribunals for relief from such crudities and inequities. There may
even be possibilities of abuse, but that too cannot of itself be a
ground for invalidating the legislation, because it is not possible
for any legislature to anticipate as if by some divine prescience,
distortions and abuses of its legislation which may be made by those
subject to its provisions and to provide against such distortions and
abuses. Indeed, howsoever great may be the care bestowed on its
framing, it is difficult to conceive of a legislation which is not
capable of being abused by perverted human ingenuity. The Court must
therefore adjudge the constitutionality of such legislation by the
generality of its provisions and not by its crudities or inequities or
by the possibilities of abuse of any of its provisions. If any
crudities, inequities or possibilities of abuse come to light, the
legislature can always step in and enact suitable amendatory
legislation. That is the essence of pragmatic approach which must
guide and inspire the legislature in dealing with complex economic
issues.”

 

134. Then again, in D. K. Trivedi & Sons & Ors. Vs. State of Gujarat &
Ors.[61], while upholding the constitutional validity of Section 15(1)
of the MMRD Act, this Court explained the principle in the following
words:

“50. Where a statute confers discretionary powers upon the executive
or an administrative authority, the validity or constitutionality of
such power cannot be judged on the assumption that the executive or
such authority will act in an arbitrary manner in the exercise of the
discretion conferred upon it. If the executive or the administrative
authority acts in an arbitrary manner, its action would be bad in law
and liable to be struck down by the courts but the possibility of
abuse of power or arbitrary exercise of power cannot invalidate the
statute conferring the power or the power which has been conferred by
it.”

 

 

 

135. Therefore, 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 of abuse, like any other method of allocation,
but that cannot be the basis of declaring it as an unconstitutional
methodology either. These drawbacks include cartelization, “winners
curse” (the phenomenon by which a bidder bids a higher, unrealistic
and unexecutable price just to surpass the competition; or where a
bidder, in case of multiple auctions, bids for all the resources and
ends up winning licenses for exploitation of more resources than he
can pragmatically execute), etc. However, all the same, auction cannot
be called ultra vires for the said reasons and continues to be an
attractive and preferred means of disposal of natural resources
especially when revenue maximization is a priority. Therefore,
neither auction, nor any other method of disposal can be held ultra
vires the Constitution, merely because of a potential abuse.

 

Judicial Review of Policy Decisions

136. The learned Attorney General also argued that dictating a method of
distribution for natural resources violates the age old established
principle of non-interference by the judiciary in policy matters. Even
though the contours of the power of judicial review of policy
decisions has become a trite subject, as the Courts have repeatedly
delivered opinions on it, we wish to reiterate some of the principles
in brief, especially with regard to economic policy choices and
pricing.

 
137. One of the earliest pronouncements on the subject came from this Court
in Rustom Cavasjee Cooper Vs. Union of India[62] (commonly known as
“Bank Nationalization Case”) wherein this Court held that it is not
the forum where conflicting policy claims may be debated; it is only
required to adjudicate the legality of a measure which has little to
do with relative merits of different political and economic theories.
The Court observed:

 
“63. This Court is not the forum in which these conflicting claims may
be debated. Whether there is a genuine need for banking facility in
the rural sector, whether certain classes of the community are
deprived of the benefit of the resources of the banking industry,
whether administration by the Government of the commercial banking
sector will not prove beneficial to the community and will lead to
rigidity in the administration, whether the Government administration
will eschew the profit-motive, and even if it be eschewed, there will
accrue substantial benefits to the public, whether an undue accent on
banking as a means of social regeneration, especially in the backward
areas, is a doctrinaire approach to a rational order of priorities for
attaining the national objectives enshrined in our Constitution, and
whether the policy followed by the Government in office or the policy
propounded by its opponents may reasonably attain the national
objectives are matters which have little relevance in determining the
legality of the measure. It is again not for this Court to consider
the relative merits of the different political theories or economic
policies. The Parliament has under Entry 45, List I the power to
legislate in respect of banking and other commercial activities of the
named banks necessarily incidental thereto: it has the power to
legislate for acquiring the undertaking of the named banks under Entry
42, List III. Whether by the exercise of the power vested in the
Reserve Bank under the pre-existing laws, results could be achieved
which it is the object of the Act to achieve, is, in our judgment, not
relevant in considering whether the Act amounts to abuse of
legislative power. This Court has the power to strike down a law on
the ground of want of authority, but the Court will not sit in appeal
over the policy of the Parliament in enacting a law. The Court cannot
find fault with the Act merely on the ground that it is inadvisable to
take over the undertaking of banks which, it is said by the
petitioner, by thrift and efficient management had set up an
impressive and efficient business organization serving large sectors
of industry.”

 
138. In R.K. Garg (supra), this Court even observed that greater judicial
deference must be shown towards a law relating to economic activities
due to the complexity of economic problems and their fulfillment
through a methodology of trial and error. As noted above, it was also
clarified that the fact that an economic legislation may be troubled
by crudities, inequities, uncertainties or the possibility of abuse
cannot be the basis for striking it down. The following observations
which refer to a couple of American Supreme Court decisions are a
limpid enunciation on the subject :

“8. Another rule of equal importance is that laws relating to economic
activities should be viewed with greater latitude than laws touching
civil rights such as freedom of speech, religion etc. It has been said
by no less a person than Holmes, J., that the legislature should be
allowed some play in the joints, because it has to deal with complex
problems which do not admit of solution through any doctrinaire or
strait-jacket formula and this is particularly true in case of
legislation dealing with economic matters, where, having regard to the
nature of the problems required to be dealt with, greater play in the
joints has to be allowed to the legislature. The court should feel
more inclined to give judicial deference to legislative judgment in
the field of economic regulation than in other areas where fundamental
human rights are involved. Nowhere has this admonition been more
felicitously expressed than in Morey v. Doud[63] where Frankfurter,
J., said in his inimitable style:
‘In the utilities, tax and economic regulation cases, there are
good reasons for judicial self-restraint if not judicial
deference to legislative judgment. The legislature after all has
the affirmative responsibility. The courts have only the power
to destroy, not to reconstruct. When these are added to the
complexity of economic regulation, the uncertainty, the
liability to error, the bewildering conflict of the experts, and
the number of times the judges have been overruled by events —
self-limitation can be seen to be the path to judicial wisdom
and institutional prestige and stability’…”

 
139. In Premium Granites & Anr. Vs. State of T.N. & Ors.[64] this Court
clarified that it is the validity of a law and not its efficacy that
can be challenged:

“54. It is not the domain of the court to embark upon unchartered
ocean of public policy in an exercise to consider as to whether a
particular public policy is wise or a better public policy can be
evolved. Such exercise must be left to the discretion of the executive
and legislative authorities as the case may be. The court is called
upon to consider the validity of a public policy only when a challenge
is made that such policy decision infringes fundamental rights
guaranteed by the Constitution of India or any other statutory
right…”

 

 

 

140. In Delhi Science Forum & Ors. Vs. Union of India & Anr.[65] a Bench of
three learned Judges of this Court, while rejecting a claim against
the opening up of the telecom sector reiterated that the forum for
debate and discourse over the merits and demerits of a policy is the
Parliament. It restated that the services of this Court are not sought
till the legality of the policy is disputed, and further, that no
direction can be given or be expected from the courts, unless while
implementing such policies, there is violation or infringement of any
of the constitutional or statutory provisions. It held thus:

“7. What has been said in respect of legislations is applicable even
in respect of policies which have been adopted by Parliament. They
cannot be tested in Court of Law. The courts cannot express their
opinion as to whether at a particular juncture or under a particular
situation prevailing in the country any such national policy should
have been adopted or not. There may be views and views, opinions and
opinions which may be shared and believed by citizens of the country
including the representatives of the people in Parliament. But that
has to be sorted out in Parliament which has to approve such
policies…”

 

141. In BALCO Employees’ Union (Regd.) Vs. Union of India & Ors.[66],
this Court further pointed out that the Court ought to stay away from
judicial review of efficacy of policy matters, not only because the
same is beyond its jurisdiction, but also because it lacks the
necessary expertise required for such a task. Affirming the previous
views of this Court, the Court observed that while dealing with
economic legislations, the Courts, while not jettisoning its
jurisdiction to curb arbitrary action or unconstitutional legislation,
should interfere only in those cases where the view reflected in the
legislation is not possible to be taken at all. The Court went on to
emphasize that unless the economic decision, based on economic
expediencies, is demonstrated to be so violative of constitutional or
legal limits on power or so abhorrent to reason, that the courts would
decline to interfere.

 

142. In BALCO (supra), the Court took notice of the judgment in Peerless
General Finance and Investment Co. Ltd. & Anr. Vs. Reserve Bank of
India[67] and observed that some matters like price fixation are based
on such uncertainties and dynamics that even experts face difficulty
in making correct projections, making it all the more necessary for
this Court to exercise non- interference:
“31. The function of the Court is to see that lawful authority is not
abused but not to appropriate to itself the task entrusted to that
authority. It is well settled that a public body invested with
statutory powers must take care not to exceed or abuse its power. It
must keep within the limits of the authority committed to it. It must
act in good faith and it must act reasonably. Courts are not to
interfere with economic policy which is the function of experts. It is
not the function of the courts to sit in judgment over matters of
economic policy and it must necessarily be left to the expert bodies.
In such matters even experts can seriously and doubtlessly differ.
Courts cannot be expected to decide them without even the aid of
experts.”
143. In an earlier case in M/s Prag Ice & Oil Mills & Anr. Vs. Union of
India[68], this Court had observed as under: (SCC p. 478, Para 24)
“We do not think that it is the function of this Court or of any court
to sit in judgment over such matters of economic policy as must
necessarily be left to the government of the day to decide. Many of
them, as a measure of price fixation must necessarily be, are matters
of prediction of ultimate results on which even experts can seriously
err and doubtlessly by differ. Courts can certainly not be expected to
decide them without even the aid of experts.”

 
144. In State of Madhya Pradesh Vs. Narmada Bachao Andolan & Anr.[69], this
Court said that the judiciary cannot engage in an exercise of
comparative analysis over the fairness, logical or scientific basis,
or wisdom of a policy. It held that the Court cannot strike down a
policy decision taken by the Government merely because it feels that
another decision would have been fairer, or more scientific or
logical, or wiser. The wisdom and advisability of the policies are
ordinarily not amenable to judicial review unless the policies are
contrary to statutory or constitutional provisions or arbitrary or
irrational or an abuse of power.
145. Mr. Subramanian Swamy also brought to our notice a Report on
Allocation of Natural Resources, prepared by a Committee, chaired by
Mr. Ashok Chawla (hereinafter referred to as the “Chawla Committee
Report”), which has produced a copious conceptual framework for the
Government of India on the allocation and pricing of scarce natural
resources viz. coal, minerals, petroleum, natural gas, spectrum,
forests, land and water. He averred to observations of the report in
favour of auction as a means of disposal. However, since the opinion
rendered in the Chawla Committee Report is pending acceptance by the
Government, it would be inappropriate for us to place judicial
reliance on it. Besides, the Report conducts an economic, and not
legal, analysis of the means of disposal of natural resources. The
purpose of this Reference would be best served if this Court gave a
constitutional answer rather than economic one.

 

 
146. To summarize in the context of the present Reference, it needs to be
emphasized that this Court cannot conduct a comparative study of the
various methods of distribution of natural resources and suggest the
most efficacious mode, if there is one universal efficacious method in
the first place. It respects the mandate and wisdom of the executive
for such matters. The methodology pertaining to disposal of natural
resources is clearly an economic policy. It entails intricate economic
choices and the Court lacks the necessary expertise to make them. As
has been repeatedly said, it cannot, and shall not, be the endeavour
of this Court to evaluate the efficacy of auction vis-à-vis other
methods of disposal of natural resources. The Court cannot mandate one
method to be followed in all facts and circumstances. Therefore,
auction, an economic choice of disposal of natural resources, is not a
constitutional mandate. We may, however, hasten to add that the Court
can test the legality and constitutionality of these methods. When
questioned, the Courts are entitled to analyse the legal validity of
different means of distribution and give a constitutional answer as to
which methods are ultra vires and intra vires the provisions of the
Constitution. Nevertheless, it cannot and will not compare which
policy is fairer than the other, but, if a policy or law is patently
unfair to the extent that it falls foul of the fairness requirement of
Article 14 of the Constitution, the Court would not hesitate in
striking it down.

 

 

147. Finally, market price, in economics, is an index of the value that a
market prescribes to a good. However, this valuation is a function of
several dynamic variables; it is a science and not a law. Auction is
just one of the several price discovery mechanisms. Since multiple
variables are involved in such valuations, auction or any other form
of competitive bidding, cannot constitute even an economic mandate,
much less a constitutional mandate.

 

148. In our opinion, auction despite being a more preferable method of
alienation/allotment of natural resources, cannot be held to be a
constitutional requirement or limitation for alienation of all natural
resources and therefore, every method other than auction cannot be
struck down as ultra-vires the constitutional mandate.

 

149. Regard being had to the aforesaid precepts, we have opined that
auction as a mode cannot be conferred the status of a constitutional
principle. Alienation of natural resources is a policy decision, and
the means adopted for the same are thus, executive prerogatives.
However, when such a policy decision is not backed by a social or
welfare purpose, and precious and scarce natural resources are
alienated for commercial pursuits of profit maximizing private
entrepreneurs, adoption of means other than those that are competitive
and maximize revenue may be arbitrary and face the wrath of Article 14
of the Constitution. Hence, rather than prescribing or proscribing a
method, we believe, a judicial scrutiny of methods of disposal of
natural resources should depend on the facts and circumstances of each
case, in consonance with the principles which we have culled out
above. Failing which, the Court, in exercise of power of judicial
review, shall term the executive action as arbitrary, unfair,
unreasonable and capricious due to its antimony with Article 14 of the
Constitution.

 
150. In conclusion, our answer to the first set of five questions is that
auctions are not the only permissible method for disposal of all
natural resources across all sectors and in all circumstances.

 
151. As regards the remaining questions, we feel that answer to these
questions would have a direct bearing on the mode of alienation of
Spectrum and therefore, in light of the statement by the learned
Attorney General that the Government is not questioning the
correctness of judgment in the 2G Case, we respectfully decline to
answer these questions. The Presidential Reference is answered
accordingly.

 

152. This opinion shall be transmitted to the President in accordance with
the procedure prescribed in Part V of the Supreme Court Rules, 1966.

 

………………………………………

(S.H. KAPADIA, CJI)

 

 
………………………………………

(D.K. JAIN, J.)

 

 

 

 

………………………………………

(DIPAK MISRA, J.)

 

 

 

………………………………………

(RANJAN GOGOI, J.)

NEW DELHI;

SEPTEMBER 27, 2012.

ARS/RS

 
IN THE SUPREME COURT OF INDIA
ADVISORY JURISDICTION
SPECIAL REFERENCE NO.1 OF 2012
IN THE MATTER OF:
Special Reference under Article 143(1)
Of the Constitution of India
O P I N I O N
JAGDISH SINGH KHEHAR, J.
1. I have had the privilege of perusing the opinion rendered by my
esteemed brother, D.K. Jain, J. Every bit of the opinion (which shall
hereinafter be referred to by me, as the “main opinion”) is based on
settled propositions of law declared by this Court. There can, therefore,
be no question of any disagreement therewith. I fully endorse the opinion
expressed therein.
2. The first question posed in the Presidential reference, is in fact
the reason, for my having to record, some other nuances on the subject
whereof advice has been sought. The first question in the Presidential
reference requires the Supreme Court to tender advice on, “Whether the only
permissible method for disposal of all natural resources across all sectors
and in all circumstances, is by the conduct of auctions?”. It is of utmost
importance to understand, the tenor of the first question in the
Presidential reference. Take for instance a hypothetical situation where,
the legality of 100 instances of disposal of different types of natural
resources is taken up for consideration. If the first question is taken in
its literal sense, as to whether the method of disposal of all natural
resources in all circumstances is by auction alone, then, even if 99 out of
the aforesaid 100 different natural resources are such, which can only be
disposed of by way of auction, the answer to the first question would still
be in the negative. This answer in the negative would give the erroneous
impression, that it is not necessary to dispose of natural resources by way
of auction. Surely, the Presidential reference has not been made, to seek
such an innocuous advice. The instant reference has been made despite the
Central Government being alive to the fact, that there are natural
resources which can only be disposed of by way of auction. A mining lease
for coal under Section 11A of the Mines and Minerals (Development and
Regulation) Act, 1957 can be granted, only by way of selection through
auction by competitive bidding. Furthermore, the learned Attorney General
for India informed us, about a conscious decision having been taken by the
Central Government to henceforth allot spectrum only through competitive
bidding by way of auction. Such instances can be multiplied. It is
therefore obvious, that Government is alive to the fact, that disposal of
some natural resources have to be made only by auction. If that is so, the
first question in the reference does not seek a literal response. The
first question must be understood to seek this Court’s opinion on whether
there are circumstances in which natural resources ought to be disposed of
only by auction. Tendering an opinion, without a response to this facet of
the matter, would not make the seeker of advice, any wiser. It is this
aspect alone, which will be the main subject of focus of my instant
opinion.
3. Before venturing into the area of consideration expressed in the
foregoing paragraph, it is necessary to record, that there was extensive
debate during the course of hearing, on whether, maximization of revenue
must be the sole permissible consideration, for disposal of all natural
resources, across all sectors and in all circumstances. During the course
of this debate, the learned Attorney General for India acknowledged, that
auction by way of competitive bidding, was certainly an indisputable means,
by which maximization of revenue returns is assured. It is not as if, one
would like to bind the learned Attorney General to the acquiesced
proposition. During the course of the days and weeks of erudite debate,
learned counsel emphasized, that disposal of assets by processes of tender,
tender-cum-auction and auction, could assure maximization of revenue
returns. Of course, there are a large variety of tender and auction
processes, each one with its own nuances. And we were informed, that a
rightful choice, would assure maximization of revenue returns. The term
“auction” expressed in my instant opinion, may therefore be read as a means
to maximize revenue returns, irrespective of whether the means adopted
should technically and correctly be described as tender, tender-cum-
auction, or auction.
4. The concept of equality before the law and equal protection of the
laws, emerges from the fundamental right expressed in Article 14 of the
Constitution of India. Equality is a definite concept. The variation in
its understanding may at best have reference to the maturity and evolution
of the nation’s thought. To start with, breach of equality was a plea
advanced by individuals claiming fair treatment. Challenges were raised
also on account of discriminatory treatment. Equality was sought by those
more meritorious, when benefits were bestowed on those with lesser caliber.
Gradually, judicial intervention came to be sought for equitable
treatment, even for a section of the society put together. A jurisdiction,
which in due course, came to be described as public interest litigation. It
all started with a demand for the basic rights for respectable human
existence. Over the years, the concept of determination of societal
rights, has traversed into different directions and avenues. So much so,
that now rights in equity, sometimes even present situations of conflict
between individual rights and societal rights. The present adjudication
can be stated to be a dispute of such nature. In a maturing society,
individual rights and plural rights have to be balanced, so that the
oscillating pendulum of rights, fairly and equally, recognizes their
respective parameters. For a country like India, the pendulum must be
understood to balance the rights of one citizen on the one side, and
124,14,91,960 (the present estimated population of India) citizens of the
country on the other. The true effect of the Article 14 of the
Constitution of India is to provide equality before the law and equal
protection of the laws not only with reference to individual rights, but
also by ensuring that its citizens on the other side of the balance are
likewise not deprived of their right to equality before the law, and their
right to equal protection of the laws. An individual citizen cannot be a
beneficiary, at the cost of the country (the remaining 124,14,91,960
citizens) i.e., the plurality. Enriching one at the cost of all others
would amount to deprivation to the plurality i.e., the nation itself. The
gist of the first question in the Presidential reference, raises the issue
whether ownership rights over the nation’s natural resources, vest in the
citizens of the country. An answer to the instant issue in turn would
determine, whether or not it is imperative for the executive while
formulating a policy for the disposal of natural resources, to ensure that
it subserves public good and public interest.

5. The introduction and acceptance of public interest litigation as a
jurisprudential concept is a matter of extensive debate in India, and even
more than that, outside India. This concept brings into focus the rights
of the plurality (as against individual’s right) specially when the
plurality is, for one or the other reason, not in a position to seek
redressal of its grievances. This inadequacy may not always emerge from
financial constrains. It may sometimes arise out of lack of awareness. At
other times merely from the overwhelming might of executive authority. The
jurisprudential thought in this country, after the emergence of public
interest litigation, is seeking to strike a balance between individual
rights and the rights of the plurality. After all, all natural resources
are the nation’s collective wealth. This Court has had the occasion over
the last few decades, to determine rights of citizens with reference to
natural resources. The right of an individual citizen to those assets, as
also, the rights of the remaining citizens of the country, have now emerged
on opposite sides in a common litigation. One will endeavour to delineate
the legal position expressed in decisions rendered by this Court, on issues
relatable to disposal of resources by the State, to determine whether the
instant issue stands settled, by law declared by this Court.

6(a) First of all reference was made to the decision of this Court in
S.G. Jaisinghani Vs. Union of India & Ors., AIR 1967 SC 1427, wherein this
Court observed as under:
“14. In this context it is important to emphasize that the
absence of arbitrary power is the first essential of the rule of law
upon which our whole constitutional system is based. In a system
governed by rule of law, discretion, when conferred upon executive
authorities, must be confined within clearly defined limits. The rule
of law from this point of view means that decisions should be made by
the application of known principles and rules and, in general, such
decisions should be predictable and the citizen should know where he
is. If a decision is taken without any principle or without any rule
it is unpredictable and such a decision is the antithesis of a
decision taken in accordance with the Rule of law. (See Dicey — Law of
the Constitution — 10th Edn., Introduction cx). “Law has reached its
finest moments,” stated Douglas, J. in United States v. Wunderlich,
(1951) 342 US 98, “when it has freed man from the unlimited discretion
of some ruler…. Where discretion, is absolute, man has always
suffered.” It is in this sense that the rule of law may be said to be
the sworn enemy of caprice. Discretion, as Lord Mansfield slated it in
classic terms in the case of John Wilkes, (1770) 4 Burr 2528 at p.
2539 “means sound discretion guided by law. It must be governed by
Rule, not by humour: it must not be arbitrary, vague, and fanciful.”

(emphasis is mine)
In the aforesaid case, it came to be emphasized that executive action
should have clearly defined limits and should be predictable. In other
words, the man on the street should know why the decision has been taken in
favour of a particular party. What came to be impressed upon was, that
lack of transparency in the decision making process would render it
arbitrary.
(b) Also cited for our consideration was the judgment in Rashbihari
Panda etc. Vs. State of Orissa (1969) 1 SCC 414. In this case it was
canvassed on behalf of the appellants, that the machinery devised by the
Government for sale of Kendu leaves in which they had acquired a trade
monopoly, was violative of the fundamental rights guaranteed under Articles
14 and 19(1)(g) of the Constitution. It was pointed out, that in the scheme
of events the purchasers were merely nominees of the agents. It is also
contended, that after the Supreme Court had struck down the policy under
which the agents were to carry on business in Kendu leaves on their own and
to make profit for themselves, the Government to help their party-men set
up a body of persons who were to be purchasers to whom the monopoly sales
were to be made at concessional rates and that the benefit which would have
otherwise been earned by the State would now get diverted to those
purchasers. It was held:
“15. Section 10 of the Act is a counterpart of Section 3 and
authorises the Government to sell or otherwise dispose of Kendu leaves
in such manner as the Government may direct. If the monopoly of
purchasing Kendu leaves by Section 3 is valid, insofar as it is
intended to be administered only for the benefit of the State, the
sale or disposal of Kendu leaves by the Government must also be in the
public interest and not to serve the private interest of any person or
class of persons. It is true that it is for the Government, having
regard to all the circumstances, to act as a prudent businessman
would, and to sell or otherwise dispose of Kendu leaves purchased
under the monopoly acquired under Section 3, but the profit resulting
from the sale must be for the public benefit and not for private gain.
Section 11 which provides that out of the net profits derived by the
Government from the trade in Kendu leaves an amount not less than one
half is to be paid to the Samitis and Gram Panchayats emphasises the
concept that the machinery of sale or disposal of Kendu leaves must
also be quashed to serve the public interest. If the scheme of
disposal creates a class of middlemen who would purchase from the
Government Kendu leaves at concessional rates and would earn large
profits disproportionate to the nature of the service rendered or duty
performed by them, it cannot claim the protection of Article
19(6)(ii).

16. Section 10 leaves the method of sale or disposal of Kendu leaves
to the Government as they think fit. The action of the Government if
conceived and executed in the interest of the general public is not
open to judicial scrutiny. But it is not given to the Government
thereby to create a monopoly in favour of third parties from their own
monopoly.

17. Validity of the schemes adopted by the Government of Orissa for
sale of Kendu leaves must be adjudged in the light of Article 19(1)(g)
and Article 14. Instead of inviting tenders the Government offered to
certain old contractors the option to purchase Kendu leaves for the
year 1968 on terms mentioned therein. The reason suggested by the
Government that these offers were made because the purchasers had
carried out their obligations in the previous year to the satisfaction
of the Government is not of any significance. From the affidavit filed
by the State Government it appears that the price fetched at public
auctions before and after January 1968, were much higher than the
prices at which Kendu leaves were offered to the old contractors. The
Government realised that the scheme of offering to enter into
contracts with the old licensees and to renew their terms was open to
grave objection, since it sought arbitrarily to exclude many persons
interested in the trade. The Government then decided to invite offers
for advance purchases of Kendu leaves but restricted the invitation to
those individuals who had carried out the contracts in the previous
year without default and to the satisfaction of the Government. By the
new scheme instead of the Government making an offer, the existing
contractors were given the exclusive right to make offers to purchase
Kendu leaves. But insofar as the right to make tenders for the
purchase of Kendu leaves was restricted to those persons who had
obtained contracts in the previous year the scheme was open to the
same objection. The right to make offers being open to a limited class
of persons it effectively shut out all other persons carrying on trade
in Kendu leaves and also new entrants into that business. It was ex
facie discriminatory, and imposed unreasonable restrictions upon the
right of persons other than existing contractors to carry on business.
In our view, both the schemes evolved by the Government were violative
of the fundamental right of the petitioners under Article 19(1)(g) and
Article 14 because the schemes gave rise to a monopoly in the trade in
Kendu leaves to certain traders, and singled out other traders for
discriminatory treatment.

18. The classification based on the circumstance that certain existing
contractors had carried out their obligations in the previous year
regularly and to the satisfaction of the Government is not based on
any real and substantial distinction bearing a just and reasonable
relation to the object sought to be achieved i.e. effective execution
of the monopoly in the public interest. Exclusion of all persons
interested in the trade, who were not in the previous year licensees
is ex facie arbitrary, it had no direct relation to the object of
preventing exploitation of pluckers and growers of Kendu leaves, nor
had it any just or reasonable relation to the securing of the full
benefit from the trade to the State.

19. Validity of the law by which the State assumed the monopoly to
trade in a given commodity has to be judged by the test whether the
entire benefit arising therefrom is to enure to the State, and the
monopoly is not used as a cloak for conferring private benefit upon a
limited class of persons. The scheme adopted by the Government first
of offering to enter into contracts with certain named licensees, and
later inviting tenders from licensees who had in the previous year
carried out their contracts satisfactorily is liable to be adjudged
void on the ground that it unreasonably excludes traders in Kendu
leaves from carrying on their business. The scheme of selling Kendu
leaves to selected purchasers or of accepting tenders only from a
specified class of purchasers was not “integrally and essentially”
connected with the creation of the monopoly and was not on the view
taken by this Court in Akadasi Padhan case, (1963) Supp. 2 SCC 691,
protected by Article 19(6)(ii): it had therefore to satisfy the
requirement of reasonableness under the first part of Article 19(6).
No attempt was made to support the scheme on the ground that it
imposed reasonable restrictions on the fundamental rights of the
traders to carry on business in Kendu leaves. The High Court also did
not consider whether the restrictions imposed upon persons excluded
from the benefit of trading satisfied the test of reasonableness under
the first part of Article 19(6). The High Court examined the problem
from the angle whether the action of the State Government was vitiated
on account of any oblique motive, and whether it was such as a prudent
person carrying on business may adopt.

20. No explanation has been attempted on behalf of the State as to why
an offer made by a well known manufacturer of bidis interested in the
trade to purchase the entire crop of Kendu leaves for the year 1968
for rupees three crores was turned down. If the interests of the State
alone were to be taken into consideration, the State stood to gain
more than rupees one crore by accepting that offer. We are not
suggesting that merely because that offer was made, the Government was
bound to accept it. The Government had to consider, as prudent
businessman, whether, having regard to the circumstances, it should
accept the offer, especially in the light of the financial position of
the offeror, the security which he was willing to give and the effect
which the acceptance of the offer may have on the other traders and
the general public interest.

21. The learned Judges of the High Court have observed that in their
view the exercise of the discretion was not shown to be arbitrary, nor
was the action shown to be lacking in bona fides. But that conclusion
is open to criticism that the Government is not shown to have
considered the prevailing prices of Kendu leaves about the time when
offers were made, the estimated crop of Kendu leaves, the conditions
in the market and the likelihood of offerers at higher prices carrying
out their obligations, and whether it was in the interests of the
State to invite tenders in the open market from all persons whether
they had or had not taken contracts in the previous year. If the
Government was anxious to ensure due performance by those who
submitted tenders for purchase of Kendu leaves, it was open to the
Government to devise adequate safeguards in that behalf. In our
judgment, the plea that the action of the Government was bona fide
cannot be an effective answer to a claim made by a citizen that his
fundamental rights were infringed by the action of the Government, nor
can the claim of the petitioners be defeated on the plea that the
Government in adopting the impugned scheme committed an error of
judgment.

22. That plea would have assisted the Government if the action was in
law valid and the objection was that the Government erred in the
exercise of its discretion. It is unnecessary in the circumstances to
consider whether the Government acted in the interest of their party-
men and to increase party funds in devising the schemes for sale of
Kendu leaves in 1968.

23. During the pendency of these proceedings the entire year for which
the contracts were given has expired. The persons to whom the
contracts were given are not before us, and we cannot declare the
contracts which had been entered into by the Government for the sale
of Kendu leaves for the year 1968 unlawful in these proceedings.
Counsel for the appellants agrees that it would be sufficient if it be
directed that the tenders for purchase of Kendu leaves be invited by
the Government in the next season from all persons interested in the
trade. We trust that in accepting tenders, the State Government will
act in the interest of the general public and not of any class of
traders so that in the next season the State may get the entire
benefit of the monopoly in the trade in Kendu leaves and no
disproportionate share thereof may be diverted to any private agency.
Subject to these observations we make no further order in the
petitions out of which these appeals arise.”

(emphasis is mine)
A perusal of the observations made by this Court reveal, that the
Government must act as a prudent businessman, and that, the profit earned
should be for public benefit and not for private gains. A plea of
reasonable restriction raised under Article 19(6) of the Constitution of
India to save the governmental action was rejected on the ground that the
scheme created middlemen who would earn large disproportionate profits.
This Court also held the action to be discriminatory because it excluded
others like the petitioners from the zone of consideration. Finally, a
direction came to be issued by this Court requiring the Government to act
in the interest of the general public and to invite tenders so that the
State may earn the entire benefit in a manner that no disproportionate
profits are diverted to any private agency.
(c) Reliance was also placed on Ramana Dayaram Shetty Vs.
International Airport Authority of India & Ors., (1979) 3 SCC 489, wherein
this Court held as under:
“21. This rule also flows directly from the doctrine of
equality embodied in Article 14. It is now well-settled as a result of
the decisions of this Court in E.P. Royappa v. State of Tamil Nadu,
(1974) 4 SCC 3, and Maneka Gandhi v. Union of India, (1978) 1 SCC 248,
that Article 14 strikes at arbitrariness in State action and ensures
fairness and equality of treatment. It requires that State action must
not be arbitrary but must be based on some rational and relevant
principle which is non-discriminatory: it must not be guided by any
extraneous or irrelevant considerations, because that would be denial
of equality. The principle of reasonableness and rationality which is
legally as well as philosophically an essential element of equality or
non-arbitrariness is projected by Article 14 and it must characterise
every State action, whether it be under authority of law or in
exercise of executive power without making of law. The State cannot,
therefore, act arbitrarily in entering into relationship, contractual
or otherwise with a third party, but its action must conform to some
standard or norm which is rational and non-discriminatory. This
principle was recognised and applied by a Bench of this Court presided
over by Ray, C.J., in Erusian Equipment and Chemicals Ltd. v. State of
West Bengal (supra) where the learned Chief Justice pointed out that-
“the State can carry on executive function by making a law or
without making a law. The exercise of such powers and functions
in trade by the State is subject to Part III of the
Constitution. Article 14 speaks of equality before the law and
equal protection of the laws. Equality of opportunity should
apply to matters of public contracts. The State has the right to
trade. The State has there the duty to observe equality. An
ordinary individual can choose not to deal with any person. The
Government cannot choose to exclude persons by discrimination.
The order of blacklisting has the effect of depriving a person
of equality of opportunity in the matter of public contract. A
person who is on the approved list is unable to enter into
advantageous relations with the Government because of the order
of blacklisting …. A citizen has a right to claim equal
treatment to enter into a contract which may be proper,
necessary and essential to his lawful calling …. It is true
that neither the petitioner nor the respondent has any right to
enter into a contract but they are entitled to equal treatment
with others who offer tender or quotations for the purchase of
the goods”.
It must, therefore follow as a necessary corollary from the principle
of equality enshrined in Article 14 that though the State is entitled
to refuse to enter into relationship with any one, yet if it does so,
it cannot arbitrarily choose any person it likes for entering into
such relationship and discriminate between persons similarly
circumstanced, but it must act in conformity with some standard or
principle which meets the test of reasonableness and non-
discrimination and any departure from such standard or principle would
be invalid unless it can be supported or justified on some rational
and non discriminatory ground.

22. It is interesting to find that this rule was recognised and
applied by a Constitution Bench of this Court in a case of sale of
kendu leaves by the Government of Orissa in Rashbihari Panda v. State
of Orissa, (1969) 1 SCC 414….. This decision wholly supports the view
we are taking in regard to the applicability of the rule against
arbitrariness in State action.”

(emphasis is mine)
An analysis of the aforesaid determination by this Court would lead to the
inference that the State has the right to trade. In executing public
contracts in its trading activity the State must be guided by relevant
principles, and not by extraneous or irrelevant consideration. The same
should be based on reasonableness and rationality as well as non-
arbitrariness. It came to be concluded, that the State while entering into
a contractual relationship, was bound to maintain the standards referred to
above. And any departure from the said standards would be invalid unless
the same is supported by good reasons.
(d) Our attention was also invited to the decision rendered in Kasturi
Lal Lakshmi Reddy Vs. State of Jammu & Kashmir & Anr., (1980) 4 SCC 1,
wherein the factual background as well as, the legal position came to be
expressed in paragraph 19 of the judgment which is being set out below:
“19. It is clear from the backdrop of the facts and
circumstances in which the impugned Order came to be made and the
terms and conditions set out in the impugned Order that it was not a
tapping contract simpliciter which was intended to be given to the
second respondents. The second respondents wanted to be assured of
regular supply of raw material in the shape of resin before they could
decide to set up a factory within the State and it was for the purpose
of ensuring supply of such raw material that the impugned Order was
made giving tapping contract to the second respondents. It was really
by way of allocation of raw material for running the factory that the
impugned Order was passed. The terms of the impugned Order show beyond
doubt that the second respondents were under an obligation to set up a
factory within the State and that 3500 metric tonnes of resin which
was permitted to be retained by the second respondents out of the
resin extracted by them was required to be utilised in the factory to
be set up by them and it was provided that no part of the resin
extracted should be allowed to be removed outside the State. The whole
object of the impugned Order was to make available 3500 metric tonnes
of resin to the second respondents for the purpose of running the
factory to be set up by them. The advantage to the State was that a
new factory for manufacture of rosin, turpentine oil and other
derivatives would come up within its territories offering more job
opportunities to the people of the State increasing their prosperity
and augmenting the State revenues and in addition the State would be
assured of a definite supply of at least 1500 metric tonnes of resin
for itself without any financial involvement or risk and with this
additional quantity of resin available to it, it would be able to set
up another factory creating more employment opportunities and, in
fact, as the counter-affidavit of Ghulam Rasul, Under-Secretary to the
Government filed on behalf of the State shows the Government lost no
time in taking steps to set up a public sector resin distillation
plant in a far-flung area of the State, namely, Sundarbani, in Rajouri
District. Moreover, the State would be able to secure extraction of
resin from these inaccessible areas on the best possible terms instead
of allowing them to remain unexploited or given over at ridiculously
low royalty. We cannot accept the contention of the petitioners that
under the impugned Order a huge benefit was conferred on the second
respondents at the cost of the State. It is clear from the terms of
the impugned Order that the second respondents would have to extract
at least 5000 metric tonnes of resin from the blazes allotted to them
in order to be entitled to retain 3500 metric tonnes. The counter-
affidavit of Ghulam Rasul on behalf of the first respondent and Guran
Devaya on behalf of the second respondents show that the estimated
cost of extraction and collection of resin from these inaccessible
areas would be at the least Rs 175 per quintal, though according to
Guran Devaya it would be in the neighbourhood of Rs.200 per quintal,
but even if we take the cost at the minimum figure of Rs.175 per
quintal, the total cost of extraction and collection would come to
Rs.87,50,000 and on this investment of Rs.87,50,000 required to be
made by the second respondents the amount of interest at the
prevailing bank rate would work out to about Rs.13,00,000. Now, as
against this expenditure of Rs 87,50,000 plus Rs.13,00,000 the second
respondents would be entitled to claim from the State, in respect of
1500 metric tonnes of resin to be delivered to it only at the rate
sanctioned by the Forest Department for the adjoining accessible
forests which were being worked on wage-contract basis. It is stated
in the counter-affidavits of Ghulam Rasul and Guran Devaya and this
statement is not seriously challenged on behalf of the petitioners,
that the cost of extraction and collection as sanctioned by the Forest
Department for the adjoining accessible forests given on wage-contract
basis in the year 1978-79 was Rs.114 per quintal and the second
respondents would, thus, be entitled to claim from the State no more
than Rs.114 per quintal in respect of 1500 metric tonnes to be
delivered to it and apart from bearing the difference between the
actual cost of extraction and collection and the amount received from
the State at the rate of Rs.114 per quintal in respect of 1500 metric
tonnes, the second respondents would have to pay the price of the
remaining 3500 metric tonnes to be retained by them at the rate of
Rs.350 per quintal. On this reckoning, the cost of 3500 metric tonnes
to be retained by the second respondents would work out at Rs.474 per
quintal. The result would be that under the impugned Order the State
would get 1500 metric tonnes of resin at the rate of Rs.114 per
quintal while the second respondents would have to pay at the rate of
Rs.474 per quintal for the balance of 3500 metric tonnes retained by
them. Obviously, a large benefit would accrue to the State under the
impugned Order. If the State were to get the blazes in these
inaccessible areas tapped through wage contract, the minimum cost
would be Rs.175 per quintal, without taking into account the
additional expenditure on account of interest, but under the impugned
Order the State would get 1500 metric tonnes of resin at a greatly
reduced rate of Rs.114 per quintal without any risk or hazard. The
State would also receive for 3500 metric tonnes of resin retained by
the second respondents price or royalty at the rate of Rs.474 per
quintal which would be much higher than the rate of Rs.260 per quintal
at which the State was allotting resin to medium scale industrial
units and the rate of Rs.320 per quintal at which it was allotting
resin to small scale units within the State. It is difficult to see
how on these facts the impugned Order could be said to be
disadvantageous to the State or in any way favouring the second
respondents at the cost of the State. The argument of the petitioners
was that at the auctions held in December 1978, January 1979 and April
1979, the price of resin realised was as much as Rs.484, Rs.520 and
Rs.700 per quintal respectively and when the market price was so high,
it was improper and contrary to public interest on the part of the
State to sell resin to the second respondents at the rate of Rs.320
per quintal under the impugned Order. This argument, plausible though
it may seem, is fallacious because it does not take into account the
policy of the State not to allow export of resin outside its
territories but to allot it only for use in factories set up within
the State. It is obvious that, in view of this policy, no resin would
be auctioned by the State and there would be no question of sale of
resin in the open market and in this situation, it would be totally
irrelevant to import the concept of market price with reference to
which the adequacy of the price charged by the State to the 2nd
respondents could be judged. If the State were simply selling resin,
there can be no doubt that the State must endeavour to obtain the
highest price subject, of course, to any other overriding
considerations of public interest and in that event, its action in
giving resin to a private individual at a lesser price would be
arbitrary and contrary to public interest. But, where the State has,
as a matter of policy, stopped selling resin to outsiders and decided
to allot it only to industries set up within the State for the purpose
of encouraging industrialisation, there can be no scope for complaint
that the State is giving resin at a lesser price than that which could
be obtained in the open market. The yardstick of price in the open
market would be wholly inept, because in view of the State policy,
there would be no question of any resin being sold in the open market.
The object of the State in such a case is not to earn revenue from
sale of resin, but to promote the setting up of industries within the
State. Moreover, the prices realised at the auctions held in December
1978, January 1979 and April 1979 did not reflect the correct and
genuine price of resin, because by the time these auctions came to be
held, it had become known that the State had taken a policy decision
to ban export of resin from its territories with effect from 1979-80
and the prices realised at the auctions were therefore scarcity
prices. In fact, the auction held in April 1979 was the last auction
in the State and since it was known that in future no resin would be
available for sale by auction in the open market to outsiders, an
unduly high price of Rs.700 per quintal was offered by the factory
owners having their factories outside the State, so that they would
get as much resin for the purpose of feeding their industrial units
for some time. The counter-affidavits show that, in fact, the average
sale price of resin realised during the year 1978-79 was only Rs.433
per quintal and as compared to this price, the 2nd respondents were
required to pay price or royalty at a higher rate of Rs.474 per
quintal for 3500 metric tonnes of resin to be retained by them under
the impugned Order. It is in the circumstances impossible to see how
it can at all be said that any benefit was conferred on the second
respondents at the cost of the State. The first head of challenge
against the impugned Order must, therefore, be rejected.”

(emphasis is mine)
An examination of the factual position of the controversy dealt with in the
judgment extracted above reveals, that the State Government formulated a
policy to set up a factory within the State, which would result in creation
of more job opportunities for the people of the State. The setting up of
the said factory would assure the State of atleast 1500 metric tones of
resin without any financial involvement. This in turn would enable the
State to set up another factory creating further employment opportunities
for the people of the State. It is therefore, that this Court concluded
that the impugned order passed by the State in favour of the second
respondent could not be said to be disadvantageous to the State and
favouring the second respondent. In a manner of understanding, this Court
found no infirmity in the impugned order passed by the State Government
because the State Government had given effect to a policy which would “best
subserve the common good” of the inhabitants of the State (as in Article
39(b) of the Constitution of India) while assigning a material resource,
though no reference was made to Article 39(b) of the Constitution of India
in the judgment. What is also of importance is, that this Court expressly
noticed, that if the State Government was simply selling resin, it was
obliged to obtain the highest possible price.
(e) Reference was then made to Dwarkadas Marfatia and Sons Vs. Board
of Trustees of the Port of Bombay, (1989) 3 SCC 293, wherein the case of
the respondent was, that in his evidence it had been mentioned by Katara
that the plot had been allotted to Dhanji Mavji since it was the policy of
the Bombay Port Trust to allot a reconstituted plot to a person occupying a
major portion of such plot. It was further asserted, that there was no
challenge to this evidence in cross-examination. It was also asserted, that
there was no evidence on the alleged policy of the Port Trust of giving
plots on joint tenancy to all the occupants. According to learned counsel
for the respondent, in the letters addressed by the Port Trust and in the
letters by and on behalf of the appellant and/or their alleged associate
concerns they had specifically admitted, that there was a policy of the
Port Trust to allot plots to the occupants of the major portions thereof
and in fact a grievance was made by them, that in accordance with the said
policy of the Bombay Port Trust, a plot was not being allotted to the
associates of the appellant. In that view of the matter it was contended,
that the issue whether the plot should have been given on joint tenancy or
not, could not have been gone into by the court in exercise of its
jurisdiction of judicial review. Reliance was placed on the observations of
Lord Justice Diplock in Council of Civil Service Unions v. Minister for the
Civil Service, (1984) 3 All ER 935, 950, where the learned Lord Justice
classified 3 grounds subject to control of judicial review, namely,
illegality, irrationality and procedural impropriety. In the aforesaid
factual background this Court concluded as under:
“21. We are unable to accept the submissions. Being a public
body even in respect of its dealing with its tenant, it must act in
public interest, and an infraction of that duty is amenable to
examination either in civil suit or in writ jurisdiction.
….. …..

28. Learned Additional Solicitor General reiterated on behalf of the
respondent that no question of mala fide had been alleged or proved in
these proceedings. Factually, he is right. But it has to be borne in
mind that governmental policy would be invalid as lacking in public
interest, unreasonable or contrary to the professed standards and this
is different from the fact that it was not done bona fide. It is true
as learned Additional Solicitor General contended that there is always
a presumption that a governmental action is reasonable and in public
interest. It is for the party challenging its validity to show that
the action is unreasonable, arbitrary or contrary to the professed
norms or not informed by public interest, and the burden is a heavy
one.

….. ……

37. As we look upon the facts of this case, there was an implied
obligation in respect of dealings with the tenants/occupants of the
Port Trust authority to act in public interest/purpose. That
requirement is fulfilled if it is demonstrated that the Port Trust
authorities have acted in pursuance of a policy which is referable to
public purpose. Once that norm is established whether that policy is
the best policy or whether another policy was possible, is not
relevant for consideration. It is, therefore, not necessary for our
present purposes to dwell on the question whether the obligation of
the Port Trust authorities to act in pursuance of a public purpose was
a public law purpose or a private law purpose. Under the
constitutional scheme of this country the Port Trust authorities were
required by relevant law to act in pursuance of public purpose. We are
satisfied that they have proceeded to so act.

(emphasis is mine)
In the instant matter, even though the controversy pertained to a tenancy
issue, this Court held, that a public body was bound to act in public
interest.
(f) In chronological sequence, learned counsel then cited Mahabir Auto
Stores & Ors. Vs. Indian Oil Corporation & Ors. (1990) 3 SCC 752. Relevant
observations made therein, with reference to the present controversy, are
being placed below:
“12. It is well settled that every action of the State or an
instrumentality of the State in exercise of its executive power, must be
informed by reason. In appropriate cases, actions uninformed by reason may
be questioned as arbitrary in proceedings under Article 226 or Article 32
of the Constitution. Reliance in this connection may be placed on the
observations of this Court in Radha Krishna Agarwal v. State of Bihar,
(1977) 3 SCC 457. It appears to us, at the outset, that in the facts and
circumstances of the case, the respondent company IOC is an organ of the
State or an instrumentality of the State as contemplated under Article 12
of the Constitution. The State acts in its executive power under Article
298 of the Constitution in entering or not entering in contracts with
individual parties. Article 14 of the Constitution would be applicable to
those exercises of power. Therefore, the action of State organ under
Article 14 can be checked. See Radha Krishna Agarwal v. State of Bihar at
p. 462, but Article 14 of the Constitution cannot and has not been
construed as a charter for judicial review of State action after the
contract has been entered into, to call upon the State to account for its
actions in its manifold activities by stating reasons for such actions. In
a situation of this nature certain activities of the respondent company
which constituted State under Article 12 of the Constitution may be in
certain circumstances subject to Article 14 of the Constitution in entering
or not entering into contracts and must be reasonable and taken only upon
lawful and relevant consideration; it depends upon facts and circumstances
of a particular transaction whether hearing is necessary and reasons have
to be stated. In case any right conferred on the citizens which is sought
to be interfered, such action is subject to Article 14 of the Constitution,
and must be reasonable and can be taken only upon lawful and relevant
grounds of public interest. Where there is arbitrariness in State action
of this type of entering or not entering into contracts, Article 14 springs
up and judicial review strikes such an action down. Every action of the
State executive authority must be subject to rule of law and must be
informed by reason. So, whatever be the activity of the public authority,
in such monopoly or semi-monopoly dealings, it should meet the test of
Article 14 of the Constitution. If a governmental action even in the
matters of entering or not entering into contracts, fails to satisfy the
test of reasonableness, the same would be unreasonable. In this connection
reference may be made to E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC
3, Maneka Gandhi v. Union of India, (1978) 1 SCC 248, Ajay Hasia v. Khalid
Mujib Sehravardi, (1981) 1 SCC 722, R.D. Shetty v. International Airport
Authority of India, (1979) 3 SCC 489, and also Dwarkadas Marfatia and Sons
v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293. It appears to
us that rule of reason and rule against arbitrariness and discrimination,
rules of fair play and natural justice are part of the rule of law
applicable in situation or action by State instrumentality in dealing with
citizens in a situation like the present one. Even though the rights of the
citizens are in the nature of contractual rights, the manner, the method
and motive of a decision of entering or not entering into a contract, are
subject to judicial review on the touchstone of relevance and
reasonableness, fair play, natural justice, equality and non-discrimination
in the type of the transactions and nature of the dealing as in the present
case.
….. …..

17. We are of the opinion that in all such cases whether public law or
private law rights are involved, depends upon the facts and circumstances
of the case. The dichotomy between rights and remedies cannot be
obliterated by any strait-jacket formula. It has to be examined in each
particular case. Mr Salve sought to urge that there are certain cases under
Article 14 of arbitrary exercise of such “power” and not cases of exercise
of a “right” arising either under a contract or under a statute. We are of
the opinion that that would depend upon the factual matrix.

18. Having considered the facts and circumstances of the case and the
nature of the contentions and the dealing between the parties and in view
of the present state of law, we are of the opinion that decision of the
State/public authority under Article 298 of the Constitution, is an
administrative decision and can be impeached on the ground that the
decision is arbitrary or violative of Article 14 of the Constitution of
India on any of the grounds available in public law field. It appears to us
that in respect of corporation like IOC when without informing the parties
concerned, as in the case of the appellant-firm herein on alleged change of
policy and on that basis action to seek to bring to an end to course of
transaction over 18 years involving large amounts of money is not fair
action, especially in view of the monopolistic nature of the power of the
respondent in this field. Therefore, it is necessary to reiterate that even
in the field of public law, the relevant persons concerned or to be
affected, should be taken into confidence. Whether and in what
circumstances that confidence should be taken into consideration cannot be
laid down on any strait-jacket basis. It depends on the nature of the right
involved and nature of the power sought to be exercised in a particular
situation. It is true that there is discrimination between power and right
but whether the State or the instrumentality of a State has the right to
function in public field or private field is a matter which, in our
opinion, depends upon the facts and circumstances of the situation, but
such exercise of power cannot be dealt with by the State or the
instrumentality of the State without informing and taking into confidence,
the party whose rights and powers are affected or sought to be affected,
into confidence. In such situations most often people feel aggrieved by
exclusion of knowledge if not taken into confidence.

19. Such transaction should continue as an administrative decision
with the organ of the State. It may be contractual or statutory but in a
situation of transaction between the parties for nearly two decades, such
procedure should be followed which will be reasonable, fair and just, that
is, the process which normally be accepted (sic is expected) to be followed
by an organ of the State and that process must be conscious and all those
affected should be taken into confidence.

20. Having regard to the nature of the transaction, we are of the
opinion that it would be appropriate to state that in cases where the
instrumentality of the state enters the contractual field, it should be
governed by the incidence of the contract. It is true that it may not be
necessary to give reasons but, in our opinion, in the field of this nature
fairness must be there to the parties concerned, and having regard to the
large number or the long period and the nature of the dealings between the
parties, the appellant should have been taken into confidence. Equality and
fairness at least demands this much from an instrumentality of the State
dealing with a right of the State not to treat the contract as subsisting.
We must, however, evolve such process which will work.
….. …..

23. It is not our decision which is important but a decision on the
above basis should be arrived at which should be fair, just and reasonable
— and consistent with good government — which will be arrived at fairly and
should be taken after taking the persons concerned whose rights/obligations
are affected, into confidence. Fairness in such action should be
perceptible, if not transparent.”
(emphasis is mine)

What came to be concluded in the judgment extracted above can be described
as an extension of the applicability of Article 14 of the Constitution of
India on the subject of contractual agreements. Hithertobefore, an act of
awarding contracts was adjudged on the touchstone of fairness. For the
first time, even a decision of not entering into a contractual arrangement
has been brought under the scope of judicial review. The requirement of
being fair, just and reasonable, i.e., principles applicable in good
governance, have been held to be equally applicable for not entering into a
contractual arrangement. Another facet of the aforesaid decision was, that
this Court expressed, that the contracting party had the right to be
informed (the right to know) why the contractual arrangement which had
continued for long years (from 1965 to 1983) was being terminated.
(g) Much emphasis was placed on the judgment rendered by this Court in
Kumari Shrilekha Vidyarthi & Ors. Vs. State of U.P. & Ors. (1991) 1 SCC
212. Observations which relied upon during the course of hearing are being
set out hereinunder:
21. The Preamble of the Constitution of India resolves to secure to
all its citizens Justice, social, economic and political; and Equality
of status and opportunity. Every State action must be aimed at
achieving this goal. Part IV of the Constitution contains ‘Directives
Principles of State Policy’ which are fundamental in the governance of
the country and are aimed at securing social and economic freedoms by
appropriate State action which is complementary to individual
fundamental rights guaranteed in Part III for protection against
excesses of State action, to realise the vision in the Preamble. This
being the philosophy of the Constitution, can it be said that it
contemplates exclusion of Article 14 — non-arbitrariness which is
basic to rule of law — from State actions in contractual field when
all actions of the State are meant for public good and expected to be
fair and just? We have no doubt that the Constitution does not
envisage or permit unfairness or unreasonableness in State actions in
any sphere of its activity contrary to the professed ideals in the
Preamble. In our opinion, it would be alien to the constitutional
scheme to accept the argument of exclusion of Article 14 in
contractual matters. The scope and permissible grounds of judicial
review in such matters and the relief which may be available are
different matters but that does not justify the view of its total
exclusion. This is more so when the modern trend is also to examine
the unreasonableness of a term in such contracts where the bargaining
power is unequal so that these are not negotiated contracts but
standard form contracts between unequals.
22. There is an obvious difference in the contracts between
private parties and contracts to which the State is a party. Private
parties are concerned only with their personal interest whereas the
State while exercising its powers and discharging its functions, acts
indubitably, as is expected of it, for public good and in public
interest. The impact of every State action is also on public interest.
This factor alone is sufficient to import at least the minimal
requirements of public law obligations and impress with this character
the contracts made by the State or its instrumentality. It is a
different matter that the scope of judicial review in respect of
disputes falling within the domain of contractual obligations may be
more limited and in doubtful cases the parties may be relegated to
adjudication of their rights by resort to remedies provided for
adjudication of purely contractual disputes. However, to the extent,
challenge is made on the ground of violation of Article 14 by alleging
that the impugned act is arbitrary, unfair or unreasonable, the fact
that the dispute also falls within the domain of contractual
obligations would not relieve the State of its obligation to comply
with the basic requirements of Article 14. To this extent, the
obligation is of a public character invariably in every case
irrespective of there being any other right or obligation in addition
thereto. An additional contractual obligation cannot divest the
claimant of the guarantee under Article 14 of non-arbitrariness at the
hands of the State in any of its actions.
23. Thus, in a case like the present, if it is shown that the
impugned State action is arbitrary and, therefore, violative of
Article 14 of the Constitution, there can be no impediment in striking
down the impugned act irrespective of the question whether an
additional right, contractual or statutory, if any, is also available
to the aggrieved persons.
24. The State cannot be attributed the split personality of Dr Jekyll
and Mr Hyde in the contractual field so as to impress on it all the
characteristics of the State at the threshold while making a contract
requiring it to fulfil the obligation of Article 14 of the
Constitution and thereafter permitting it to cast off its garb of
State to adorn the new robe of a private body during the subsistence
of the contract enabling it to act arbitrarily subject only to the
contractual obligations and remedies flowing from it. It is really the
nature of its personality as State which is significant and must
characterize all its actions, in whatever field, and not the nature of
function, contractual or otherwise, which is decisive of the nature of
scrutiny permitted for examining the validity of its act. The
requirement of Article 14 being the duty to act fairly, justly and
reasonably, there is nothing which militates against the concept of
requiring the State always to so act, even in contractual matters.
There is a basic difference between the acts of the State which must
invariably be in pubic interest and those of a private individual,
engaged in similar activities, being primarily for personal gain,
which may or may not promote public interest. Viewed in this manner,
in which we find no conceptual difficulty or anachronism, we find no
reason why the requirement of Article 14 should not extend even in the
sphere of contractual matters for regulating the conduct of the State
activity.
25. In Wade: Administrative Law (6th edn.) after indicating that ‘the
powers of public authorities are essentially different from those of
private persons’, it has been succinctly stated at pp. 400-01 as
under:

“… The whole conception of unfettered discretion is
inappropriate to a public authority, which possesses powers
solely in order that it may use them for the public good.

There is nothing paradoxical in the imposition of such legal
limits. It would indeed be paradoxical if they were not imposed.
Nor is this principle an oddity of British or American law: it
is equally prominent in French law. Nor is it a special
restriction which fetters only local authorities: it applies no
less to ministers of the Crown. Nor is it confined to the sphere
of administration: it operates wherever discretion is given for
some public purpose, for example where a judge has a discretion
to order jury trial. It is only where powers are given for the
personal benefit of the person empowered that the discretion is
absolute. Plainly this can have no application in public law.

For the same reasons there should in principle be no such thing
as unreviewable administrative discretion, which should be just
as much a contradiction in terms as unfettered discretion. The
question which has to be asked is what is the scope of judicial
review, and in a few special cases the scope for the review of
discretionary decisions may be minimal. It remains axiomatic
that all discretion is capable of abuse, and that legal limits
to every power are to be found somewhere.

The view, we are taking, is, therefore, in consonance with the current
thought in this field. We have no doubt that the scope of judicial
review may vary with reference to the type of matter involved, but the
fact that the action is reviewable, irrespective of the sphere in
which it is exercised, cannot be doubted.

26. A useful treatment of the subject is to be found in an
article “Judicial Review and Contractual Powers of Public
Authorities”, (1990) 106 LQR 277-92. The conclusion drawn in the
article on the basis of recent English decisions is that “public law
principles designed to protect the citizens should apply because of
the public nature of the body, and they may have some role in
protecting the public interest”. The trend now is towards judicial
review of contractual powers and the other activities of the
government. Reference is made also to the recent decision of the Court
of Appeal in Jones v. Swansea City Council, (1990) 1 WLR 54, where the
court’s clear inclination to the view that contractual powers should
generally be reviewable is indicated, even though the Court of Appeal
faltered at the last step and refrained from saying so. It is
significant to note that emphasis now is on reviewability of every
State action because it stems not from the nature of function, but
from the public nature of the body exercising that function; and all
powers possessed by a public authority, howsoever conferred, are
possessed ‘solely in order that it may use them for the public good’.
The only exception limiting the same is to be found in specific cases
where such exclusion may be desirable for strong reasons of public
policy. This, however, does not justify exclusion of reviewability in
the contractual field involving the State since it is no longer a mere
private activity to be excluded from public view or scrutiny.

27. Unlike a private party whose acts uninformed by reason and
influenced by personal predilections in contractual matters may result
in adverse consequences to it alone without affecting the public
interest, any such act of the State or a public body even in this
field would adversely affect the public interest. Every holder of a
public office by virtue of which he acts on behalf of the State or
public body is ultimately accountable to the people in whom the
sovereignty vests. As such, all powers so vested in him are meant to
be exercised for public good and promoting the public interest. This
is equally true of all actions even in the field of contract. Thus,
every holder of a public office is a trustee whose highest duty is to
the people of the country and, therefore, every act of the holder of a
public office, irrespective of the label classifying that act, is in
discharge of public duty meant ultimately for public good. With the
diversification of State activity in a Welfare State requiring the
State to discharge its wide ranging functions even through its several
instrumentalities, which requires entering into contracts also, it
would be unreal and not pragmatic, apart from being unjustified to
exclude contractual matters from the sphere of State actions required
to be non-arbitrary and justified on the touchstone of Article 14.

28. Even assuming that it is necessary to import the concept
of presence of some public element in a State action to attract
Article 14 and permit judicial review, we have no hesitation in saying
that the ultimate impact of all actions of the State or a public body
being undoubtedly on public interest, the requisite public element for
this purpose is present also in contractual matters. We, therefore,
find it difficult and unrealistic to exclude the State actions in
contractual matters, after the contract has been made, from the
purview of judicial review to test its validity on the anvil of
Article 14.

29. It can no longer be doubted at this point of time that
Article 14 of the Constitution of India applies also to matters of
governmental policy and if the policy or any action of the government,
even in contractual matters, fails to satisfy the test of
reasonableness, it would be unconstitutional. [See Ramana Dayaram
Shetty v. International Airport Authority of India, (1979) 3 SCC 489,
and Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4
SCC 1]. In Col. A.S. Sangwan v. Union of India, (1980) Supp. SCC 559,
while the discretion to change the policy in exercise of the executive
power, when not trammelled by the statute or rule, was held to be
wide, it was emphasised as imperative and implicit in Article 14 of
the Constitution that a change in policy must be made fairly and
should not give the impression that it was so done arbitrarily or by
any ulterior criteria. The wide sweep of Article 14 and the
requirement of every State action qualifying for its validity on this
touchstone, irrespective of the field of activity of the State, has
long been settled. Later decisions of this Court have reinforced the
foundation of this tenet and it would be sufficient to refer only to
two recent decisions of this Court for this purpose.
….. …..

33. No doubt, it is true, as indicated by us earlier, that
there is a presumption of validity of the State action and the burden
is on the person who alleges violation of Article 14 to prove the
assertion. However, where no plausible reason or principle is
indicated nor is it discernible and the impugned State action,
therefore, appears to be ex facie arbitrary, the initial burden to
prove the arbitrariness is discharged shifting onus on the State to
justify its action as fair and reasonable. If the State is unable to
produce material to justify its action as fair and reasonable, the
burden on the person alleging arbitrariness must be held to be
discharged. The scope of judicial review is limited as indicated in
Dwarkadas Marfatia case (supra) to oversee the State action for the
purpose of satisfying that it is not vitiated by the vice of
arbitrariness and no more. The wisdom of the policy or the lack of it
or the desirability of a better alternative is not within the
permissible scope of judicial review in such cases. It is not for the
courts to recast the policy or to substitute it with another which is
considered to be more appropriate, once the attack on the ground of
arbitrariness is successfully repelled by showing that the act which
was done, was fair and reasonable in the facts and circumstances of
the case. As indicated by Diplock, L.J., in Council of Civil Service
Unions v. Minister for the Civil Service, (1984) 3 All ER 935, the
power of judicial review is limited to the grounds of illegality,
irrationality and procedural impropriety. In the case of
arbitrariness, the defect of irrationality is obvious.
….. …..

36. The meaning and true import of arbitrariness is more easily
visualized than precisely stated or defined. The question, whether an
impugned act is arbitrary or not, is ultimately to be answered on the
facts and in the circumstances of a given case. An obvious test to
apply is to see whether there is any discernible principle emerging
from the impugned act and if so, does it satisfy the test of
reasonableness. Where a mode is prescribed for doing an act and there
is no impediment in following that procedure, performance of the act
otherwise and in a manner which does not disclose any discernible
principle which is reasonable, may itself attract the vice of
arbitrariness. Every State action must be informed by reason and it
follows that an act uninformed by reason, is arbitrary. Rule of law
contemplates governance by laws and not by humour, whims or caprices
of the men to whom the governance is entrusted for the time being. It
is trite that ‘be you ever so high, the laws are above you’. This is
what men in power must remember, always.”

(emphasis is mine)
The legal proposition laid down in the instant judgment may be summarized
as follows. Firstly, State action in the contractual field are meant for
public good and in public interest and are expected to be fair and just.
Secondly, it would be alien to the constitutional scheme to accept the
argument of exclusion of Article 14 of the Constitution of India in
contractual matters. Thirdly, the fact that a dispute falls in the domain
of contractual obligation, would make no difference, to a challenge raised
under Article 14 of the Constitution of India on the ground that the
impugned act is arbitrary, unfair and unreasonable. Fourthly, every State
action must be informed of reason and it follows that an act uninformed by
reason is arbitrary. Fifthly, where no plausible reason or principle is
indicated (or is discernible), and where the impugned action ex facie
appears to be arbitrary, the onus shifts on the State to justify its action
as fair and reasonable. Sixthly, every holder of public office is
accountable to the people in whom the sovereignty vests. All powers vested
in a public office, even in the field of contract, are meant to be
exercised for public good and for promoting public interest. And
Seventhly, Article 14 of the Constitution of India applies also to matters
of governmental policy even in contractual matters, and if the policy or
any action of the government fails to satisfy the test of reasonableness,
the same would be unconstitutional.
(h) Thereafter our attention was invited to the decision rendered in
Lucknow Development Authority Vs. M.K. Gupta, (1994) 1 SCC 243. Seriously,
the instant judgment has no direct bearing to the issue in hand. The
judgment determines whether compensation can be awarded to an aggrieved
consumer under the Consumer Protection Act, 1986. It also settles who
should shoulder the responsibility of paying the compensation awarded. But
all the same it has some interesting observations which may be noticed in
the context of the matter under deliberation. Portions of the observations
emphasized upon are being noticed below:
“8. ….. Under our Constitution sovereignty vests in the people. Every
limb of the constitutional machinery is obliged to be people oriented.
No functionary in exercise of statutory power can claim immunity,
except to the extent protected by the statute itself. Public
authorities acting in violation of constitutional or statutory
provisions oppressively are accountable for their behaviour before
authorities created under the statute like the commission or the
courts entrusted with responsibility of maintaining the rule of law.
Each hierarchy in the Act is empowered to entertain a complaint by the
consumer for value of the goods or services and compensation. The word
‘compensation’ is again of very wide connotation. It has not been
defined in the Act. According to dictionary it means, ‘compensating or
being compensated; thing given as recompense;’. In legal sense it may
constitute actual loss or expected loss and may extend to physical,
mental or even emotional suffering, insult or injury or loss.
Therefore, when the Commission has been vested with the jurisdiction
to award value of goods or services and compensation it has to be
construed widely enabling the Commission to determine compensation for
any loss or damage suffered by a consumer which in law is otherwise
included in wide meaning of compensation. The provision in our opinion
enables a consumer to claim and empowers the Commission to redress any
injustice done to him. Any other construction would defeat the very
purpose of the Act. The Commission or the Forum in the Act is thus
entitled to award not only value of the goods or services but also to
compensate a consumer for injustice suffered by him.
….. …..
10. Who should pay the amount determined by the Commission for
harassment and agony, the statutory authority or should it be realised
from those who were responsible for it? Compensation as explained
includes both the just equivalent for loss of goods or services and
also for sufferance of injustice. For instance in Civil Appeal No. …
of 1993 arising out of SLP (Civil) No. 659 of 1991 the Commission
directed the Bangalore Development Authority to pay Rs 2446 to the
consumer for the expenses incurred by him in getting the lease-cum-
sale agreement registered as it was additional expenditure for
alternative site allotted to him. No misfeasance was found. The moment
the authority came to know of the mistake committed by it, it took
immediate action by alloting alternative site to the respondent. It
was compensation for exact loss suffered by the respondent. It arose
in due discharge of duties. For such acts or omissions the loss
suffered has to be made good by the authority itself. But when the
sufferance is due to mala fide or oppressive or capricious acts etc.
of a public servant, then the nature of liability changes. The
Commission under the Act could determine such amount if in its opinion
the consumer suffered injury due to what is called misfeasance of the
officers by the English Courts. Even in England where award of
exemplary or aggravated damages for insult etc. to a person has now
been held to be punitive, exception has been carved out if the injury
is due to, ‘oppressive, arbitrary or unconstitutional action by
servants of the Government’ (Salmond and Heuston on the Law of Torts).
Misfeasance in public office is explained by Wade in his book on
Administrative Law thus:
“Even where there is no ministerial duty as above, and even
where no recognised tort such as trespass, nuisance, or
negligence is committed, public authorities or officers may be
liable in damages for malicious, deliberate or injurious wrong-
doing. There is thus a tort which has been called misfeasance in
public office, and which includes malicious abuse of power,
deliberate maladministration, and perhaps also other unlawful
acts causing injury.” (p. 777)

The jurisdiction and power of the courts to indemnify a citizen for
injury suffered due to abuse of power by public authorities is founded
as observed by Lord Hailsham in Cassell & Co. Ltd. v. Broome, 1972 AC
1027, on the principle that, ‘an award of exemplary damages can serve
a useful purpose in vindicating the strength of law’. An ordinary
citizen or a common man is hardly equipped to match the might of the
State or its instrumentalities. That is provided by the rule of law.
It acts as a check on arbitrary and capricious exercise of power. In
Rookes v. Barnard, 1964 AC 1129, it was observed by Lord Devlin, ‘the
servants of the government are also the servants of the people and the
use of their power must always be subordinate to their duty of
service’. A public functionary if he acts maliciously or oppressively
and the exercise of power results in harassment and agony then it is
not an exercise of power but its abuse. No law provides protection
against it. He who is responsible for it must suffer it. Compensation
or damage as explained earlier may arise even when the officer
discharges his duty honestly and bona fide. But when it arises due to
arbitrary or capricious behaviour then it loses its individual
character and assumes social significance. Harassment of a common man
by public authorities is socially abhorring and legally impermissible.
It may harm him personally but the injury to society is far more
grievous. Crime and corruption thrive and prosper in the society due
to lack of public resistance. Nothing is more damaging than the
feeling of helplessness. An ordinary citizen instead of complaining
and fighting succumbs to the pressure of undesirable functioning in
offices instead of standing against it. Therefore the award of
compensation for harassment by public authorities not only compensates
the individual, satisfies him personally but helps in curing social
evil. It may result in improving the work culture and help in changing
the outlook. Wade in his book Administrative Law has observed that it
is to the credit of public authorities that there are simply few
reported English decisions on this form of malpractice, namely,
misfeasance in public offices which includes malicious use of power,
deliberate maladministration and perhaps also other unlawful acts
causing injury. One of the reasons for this appears to be development
of law which, apart, from other factors succeeded in keeping a
salutary check on the functioning in the government or semi-government
offices by holding the officers personally responsible for their
capricious or even ultra vires action resulting in injury or loss to a
citizen by awarding damages against them. Various decisions rendered
from time to time have been referred to by Wade on Misfeasance by
Public Authorities. We shall refer to some of them to demonstrate how
necessary it is for our society. In Ashby v. White, (1703) 2 LD Raym
938, the House of Lords invoked the principle of ubi jus ibi remedium
in favour of an elector who was wrongfully prevented from voting and
decreed the claim of damages. The ratio of this decision has been
applied and extended by English Courts in various situations.

11. Today the issue thus is not only of award of compensation
but who should bear the brunt. The concept of authority and power
exercised by public functionaries has many dimensions. It has
undergone tremendous change with passage of time and change in socio-
economic outlook. The authority empowered to function under a statute
while exercising power discharges public duty. It has to act to
subserve general welfare and common good. In discharging this duty
honestly and bona fide, loss may accrue to any person. And he may
claim compensation which may in circumstances be payable. But where
the duty is performed capriciously or the exercise of power results in
harassment and agony then the responsibility to pay the loss
determined should be whose? In a modern society no authority can
arrogate to itself the power to act in a manner which is arbitrary. It
is unfortunate that matters which require immediate attention linger
on and the man in the street is made to run from one end to other with
no result. The culture of window clearance appears to be totally dead.
Even in ordinary matters a common man who has neither the political
backing nor the financial strength to match the inaction in public
oriented departments gets frustrated and it erodes the credibility in
the system. Public administration, no doubt involves a vast amount of
administrative discretion which shields the action of administrative
authority. But where it is found that exercise of discretion was mala
fide and the complainant is entitled to compensation for mental and
physical harassment then the officer can no more claim to be under
protective cover. When a citizen seeks to recover compensation from a
public authority in respect of injuries suffered by him for capricious
exercise of power and the National Commission finds it duly proved
then it has a statutory obligation to award the same. It was never
more necessary than today when even social obligations are regulated
by grant of statutory powers. The test of permissive form of grant is
over. It is now imperative and implicit in the exercise of power that
it should be for the sake of society. When the court directs payment
of damages or compensation against the State the ultimate sufferer is
the common man. It is the tax payers’ money which is paid for inaction
of those who are entrusted under the Act to discharge their duties in
accordance with law. It is, therefore, necessary that the Commission
when it is satisfied that a complainant is entitled to compensation
for harassment or mental agony or oppression, which finding of course
should be recorded carefully on material and convincing circumstances
and not lightly, then it should further direct the department
concerned to pay the amount to the complainant from the public fund
immediately but to recover the same from those who are found
responsible for such unpardonable behaviour by dividing it
proportionately where there are more than one functionaries.”

(emphasis is mine)

The judgment brings out the foundational principle of executive governance.
The said foundational principle is based on the realization that
sovereignty vests in the people. The judgment therefore records that every
limb of the constitutional machinery is obliged to be people oriented. The
fundamental principle brought out by the judgment is, that a public
authority exercising public power discharges a public duty, and therefore,
has to subserve general welfare and common good. All power should be
exercised for the sake of society. The issue which was the subject matter
of consideration, and has been noticed along with the citation, was decided
by concluding that compensation shall be payable by the State (or its
instrumentality) where inappropriate deprivation on account of improper
exercise of discretion has resulted in a loss, compensation is payable by
the State (or its instrumentality). But where the public functionary
exercises his discretion capriciously, or for considerations which are
malafide, the public functionary himself must shoulder the burden of
compensation held as payable. The reason for shifting the onus to the
public functionary deserves notice. This Court felt, that when a court
directs payment of damages or compensation against the State, the ultimate
sufferer is the common man, because it is tax payers money out of which
damages and costs are paid.
(i) Next cited for our consideration was the judgment in Common Cause,
A Registered Society Vs. Union of India & Ors., (1996) 6 SCC 530. The
instant case dealt with a challenge to the allotment of retail outlets for
petroleum products (petrol pumps). Allotment was made in favour of 15
persons on the ground of poverty or unemployment. Rest of the relevant
facts emerge from the extracts from the judgment reproduced below:
“24. The orders of the Minister reproduced above read: “the
applicant has no regular income to support herself and her family”,
“the applicant is an educated lady and belongs to Scheduled Tribe
community”, “the applicant is unemployed and has no regular source of
income”, “the applicant is an uneducated, unemployed Scheduled Tribe
youth without regular source of livelihood”, “the applicant is a
housewife whose family is facing difficult financial circumstances”
etc. etc. There would be literally millions of people in the country
having these circumstances or worse. There is no justification
whatsoever to pick up these persons except that they happen to have
won the favour of the Minister on mala fide considerations. None of
these cases fall within the categories placed before this Court in
Centre for Public Interest Litigation v. Union of India, 1995 Supp.
(3) SCC 382, but even if we assume for argument sake that these cases
fall in some of those or similar guidelines the exercise of discretion
was wholly arbitrary. Such a discretionary power which is capable of
being exercised arbitrarily is not permitted by Article 14 of the
Constitution of India. While Article 14 permits a reasonable
classification having a rational nexus to the objective sought to be
achieved, it does not permit the power to pick and choose arbitrarily
out of several persons falling in the same category. A transparent and
objective criteria/procedure has to be evolved so that the choice
among the members belonging to the same class or category is based on
reason, fair play and non-arbitrariness. It is essential to lay down
as a matter of policy as to how preferences would be assigned between
two persons falling in the same category. If there are two eminent
sportsmen in distress and only one petrol pump is available, there
should be clear, transparent and objective criteria/procedure to
indicate who out of the two is to be preferred. Lack of transparency
in the system promotes nepotism and arbitrariness. It is absolutely
essential that the entire system should be transparent right from the
stage of calling for the applications up to the stage of passing the
orders of allotment. The names of the allottees, the orders and the
reasons for allotment should be available for public knowledge and
scrutiny. Mr Shanti Bhushan has suggested that the petrol pumps,
agencies etc. may be allotted by public auction — category wise
amongst the eligible and objectively selected applicants. We do not
wish to impose any procedure on the Government. It is a matter of
policy for the Government to lay down. We, however, direct that any
procedure laid down by the Government must be transparent, just, fair
and non-arbitrary.
….. …..

26. With the change in socio-economic outlook, the public
servants are being entrusted with more and more discretionary powers
even in the field of distribution of government wealth in various
forms. We take it to be perfectly clear, that if a public servant
abuses his office either by an act of omission or commission, and the
consequence of that is injury to an individual or loss of public
property, an action may be maintained against such public servant. No
public servant can say “you may set aside an order on the ground of
mala fide but you cannot hold me personally liable”. No public servant
can arrogate to himself the power to act in a manner which is
arbitrary.”

(emphasis is mine)
This judgment has a direct bearing on the controversy in hand. It clearly
delineates the manner in which discretion must be exercised, specially when
the object of discretion is State largesse. A perusal of the observations
reproduced above reveal, that the State largesse under reference (petrol
pumps) were to be allotted on the ground of poverty and unemployment. Such
an allotment was obviously based on a policy to “best subserve the common
good” enshrined in Article 39(b) of the Constitution of India. This Court
found no fault in the policy itself. The fault was with the manner of
giving effect to the policy. It was held, that a transparent and objective
criteria/procedure has to be evolved, so that the choice out of those who
are eligible can be made fairly and without any arbitrariness. The
exercise of discretion which enables the competent authority to arbitrarily
pick and choose out of several persons falling in the same category,
according to the above decision would be arbitrary, and as such violative
of Article 14 of the Constitution of India.
(j) Out of the more recent judgments our attention was invited to
Meerut Development Authority Vs. Association of Management Studies & Anr.
etc., (2009) 6 SCC 171. The controversy adjudicated upon in this case
emerges from the decision of the appellant to allotment of 2 plots of land.
For the said purpose the appellant invited tenders from interested
persons. In response the respondent submitted its tender. After the
allotment of one of the plots to the respondent, the respondent raised an
objection that the appellant had fixed the reserved price of the second
plot at a rate much higher than its adjoining plots. The respondent
assailed the action of the appellant in issuing a fresh advertisement for
the allotment of the second plot. In the course of determination of the
aforesaid controversy this Court held:
“26. A tender is an offer. It is something which invites and is
communicated to notify acceptance. Broadly stated it must be
unconditional; must be in the proper form, the person by whom tender
is made must be able to and willing to perform his obligations. The
terms of the invitation to tender cannot be open to judicial scrutiny
because the invitation to tender is in the realm of contract. However,
a limited judicial review may be available in cases where it is
established that the terms of the invitation to tender were so tailor-
made to suit the convenience of any particular person with a view to
eliminate all others from participating in the bidding process.
27. The bidders participating in the tender process have no
other right except the right to equality and fair treatment in the
matter of evaluation of competitive bids offered by interested persons
in response to notice inviting tenders in a transparent manner and
free from hidden agenda. One cannot challenge the terms and conditions
of the tender except on the abovestated ground, the reason being the
terms of the invitation to tender are in the realm of the contract. No
bidder is entitled as a matter of right to insist the authority
inviting tenders to enter into further negotiations unless the terms
and conditions of notice so provided for such negotiations.
28. It is so well settled in law and needs no restatement at
our hands that disposal of the public property by the State or its
instrumentalities partakes the character of a trust. The methods to be
adopted for disposal of public property must be fair and transparent
providing an opportunity to all the interested persons to participate
in the process.
29. The Authority has the right not to accept the highest bid
and even to prefer a tender other than the highest bidder, if there
exist good and sufficient reasons, such as, the highest bid not
representing the market price but there cannot be any doubt that the
Authority’s action in accepting or refusing the bid must be free from
arbitrariness or favouritism.
….. …..
39. The law has been succinctly stated by Wade in his
treatise, Administrative Law:

“The powers of public authorities are therefore essentially different
from those of private persons. A man making his will may, subject to
any rights of his dependants, dispose of his property just as he may
wish. He may act out of malice or a spirit of revenge, but in law this
does not affect his exercise of his power. In the same way a private
person has an absolute power to allow whom he likes to use his land,
to release a debtor, or, where the law permits, to evict a tenant,
regardless of his motives. This is unfettered discretion. But a public
authority may do none of these things unless it acts reasonably and in
good faith and upon lawful and relevant grounds of public interest. So
a city council acted unlawfully when it refused unreasonably to let a
local rugby football club use the city’s sports ground, though a
private owner could of course have refused with impunity. Nor may a
local authority arbitrarily release debtors, and if it evicts tenants,
even though in accordance with a contract, it must act reasonably and
‘within the limits of fair dealing’. The whole conception of
unfettered discretion is inappropriate to a public authority, which
possesses powers solely in order that it may use them for the public
good.”, Administrative Law, 9th Edn. H.W.R. Wade and C.F. Forsyth.

40. There is no difficulty to hold that the authorities owe a
duty to act fairly but it is equally well settled in judicial review,
the court is not concerned with the merits or correctness of the
decision, but with the manner in which the decision is taken or the
order is made. The court cannot substitute its own opinion for the
opinion of the authority deciding the matter.

41. The distinction between appellate power and a judicial
review is well known but needs reiteration. By way of judicial review,
the court cannot examine the details of the terms of the contract
which have been entered into by the public bodies or the State. The
courts have inherent limitations on the scope of any such enquiry. If
the contract has been entered into without ignoring the procedure
which can be said to be basic in nature and after an objective
consideration of different options available taking into account the
interest of the State and the public, then the court cannot act as an
appellate court by substituting its opinion in respect of selection
made for entering into such contract. But at the same time the courts
can certainly examine whether the “decision-making process” was
reasonable, rational, not arbitrary and violative of Article 14. (See
Sterling Computers Ltd. Vs. M&N Publications Ltd., (1993) 1 SCC 445).

 

….. …..

50. We are, however, of the opinion that the effort, if any,
made by MDA to augment its financial resources and revenue itself
cannot be said to be an unreasonable decision. It is well said that
the struggle to get for the State the full value of its resources is
particularly pronounced in the sale of State-owned natural assets to
the private sector. Whenever the Government or the authorities get
less than the full value of the asset, the country is being cheated;
there is a simple transfer of wealth from the citizens as a whole to
whoever gets the assets “at a discount”. Most of the times the wealth
of the State goes to the individuals within the country rather than to
multinational corporations; still, wealth slips away that ought to
belong to the nation as a whole.

(emphasis is mine)

In the instant judgment this Court laid down, that in a tender process, a
tenderer has the right to fair treatment and the right to be treated
equally. The evaluation of tenders, it has been held, must be transparent
and free from any hidden agenda. The view expressed in Wades Tretise on
Administrative Law, that public authorities cannot act in a manner which is
open to private persons, was accepted. Public authorities, it was held,
can neither act out of malice nor a spirit of revenge. A public authority
is ordained to act, reasonably and in good faith and upon lawful and
relevant grounds of public interest. Most importantly it was concluded,
that the State “must” get the “full value” of the resources, specially when
State owned assets are passed over to private individuals/entities. Not
stopping there the Court added further, that whoever pays less than the
full value, get the assets belonging to the citizens “at a discount”, and
as such the wealth that belongs to the nation slips away.

(k) Also cited for our consideration was the judgment in Reliance
Natural Resources Ltd. Vs. Reliance Industries Ltd. etc., (2010) 7 SCC 1.
The Court’s attention was invited to the following:
“33. Mr R.F. Nariman, learned Senior Counsel appearing for RIL
concentrated his argument with reference to Sections 391 to 394 of the
Companies Act. According to him, Section 392 of the Act had no
predecessors either in English law or in the Companies Act of 1913.
The reason why the legislature appears to have felt the necessity of
enacting Section 392 is to bring Section 391 on a par with Section
394. Section 394 applies only to companies which are reconstructing
and or amalgamating, involving the transfer of assets and liabilities
to another company. It is thus, applicable to a species of the genus
of company referred to under Section 391. Section 394, sub-section 1
specifically gives the Company Court the power not merely to sanction
the compromise or arrangement but also gives the Company Court the
power, by a subsequent order, to make provisions for “such incidental,
consequential and supplemental matters as are necessary to secure that
the reconstruction or amalgamation shall be fully and effectively
carried out” [Section 394(1)(vi)]. This power is absent in Section
391, so that companies falling within Section 391, but not within
Section 394, would not be amenable to the Company Court’s jurisdiction
to enforce a compromise or arrangement made under Section 391 and to
see that they are fully carried out. Hence, the power under Section
392 has to be understood in the above context, and is of the same
quality as the power expressly given to the Company Court post-
sanction under Section 394.
….. …..
122. From the above analysis, the following are the broad
sustainable conclusions which can be derived from the position of the
Union:

(1) The natural resources are vested with the Government as a matter
of trust in the name of the people of India. Thus, it is the
solemn duty of the State to protect the national interest.
(2) Even though exploration, extraction and exploitation of
natural resources are within the domain of governmental
function, the Government has decided to privatise some of its
functions. For this reason, the constitutional restrictions on
the Government would equally apply to the private players in
this process. Natural resources must always be used in the
interests of the country, and not private interests.
(3) The broader constitutional principles, the statutory
scheme as well as the proper interpretation of the PSC mandates
the Government to determine the price of the gas before it is
supplied by the contractor.
(4) The policy of the Government, including the gas
utilisation policy and the decision of EGOM would be applicable
to the pricing in the present case.
(5) The Government cannot be divested of its supervisory
powers to regulate the supply and distribution of gas.
….. …..
128. In a constitutional democracy like ours, the national
assets belong to the people. The Government holds such natural
resources in trust. Legally, therefore, the Government owns such
assets for the purposes of developing them in the interests of the
people. In the present case, the Government owns the gas till it
reaches its ultimate consumer. A mechanism is provided under the PSC
between the Government and the contractor (RIL, in the present case).
The PSC shall override any other contractual obligation between the
contractor and any other party.
….. …..
243. The structure of our Constitution is not such that it
permits the reading of each of the Directive Principles of State
Policy, that have been framed for the achievement of conditions of
social, economic and political justice in isolation. The structural
lines of logic, of ethical imperatives of the State and the lessons of
history flow from one to the other. In the quest for national
development and unity of the nation, it was felt that the “ownership
and control of the material resources of the community” if distributed
in a manner that does not result in common good, it would lead to
derogation from the quest for national development and the unity of
the nation. Consequently, Article 39(b) of the Constitution should be
construed in light of Article 38 of the Constitution and be understood
as placing an affirmative obligation upon the State to ensure that
distribution of material resources of the community does not result in
heightening of inequalities amongst people and amongst regions. In
line with the logic of the constitutional matrix just enunciated, and
in the sweep of the quest for national development and unity, is
another provision. Inasmuch as inequalities between people and regions
of the nation are inimical to those goals, Article 39(c) posits that
the “operation of the economic system” when left unattended and
unregulated, leads to “concentration of wealth and means of production
to the common detriment” and commands the State to ensure that the
same does not occur.
….. …..
250 We hold that with respect to the natural resources
extracted and exploited from the geographic zones specified in Article
297 the Union may not:
(1) transfer title of those resources after their extraction
unless the Union receives just and proper compensation for the
same;
(2) allow a situation to develop wherein the various users in
different sectors could potentially be deprived of access to
such resources;
(3) allow the extraction of such resources without a clear
policy statement of conservation, which takes into account total
domestic availability, the requisite balancing of current needs
with those of future generations, and also India’s security
requirements;
(4) allow the extraction and distribution without periodic
evaluation of the current distribution and making an assessment
of how greater equity can be achieved, as between sectors and
also between regions;
(5) allow a contractor or any other agency to extract and
distribute the resources without the explicit permission of the
Union of India, which permission can be granted only pursuant to
a rationally framed utilisation policy; and
(6) no end user may be given any guarantee for continued
access and of use beyond a period to be specified by the
Government.

Any contract including a PSC which does not take into its ambit stated
principles may itself become vulnerable and fall foul of Article 14 of
the Constitution.

(emphasis is mine)
Interestingly, in this case the position adopted by the Union needs to be
highlighted. This Court was informed, that natural resources are vested in
the Government, as a matter of trust, in the name of the people of India.
And that, it was the solemn duty of the State to protect the national
interest. The most significant assertion expressed on behalf of the Union
was, that natural resources must always be used in the interest of the
country and not in private interest. It is in the background of the stance
adopted by the Union, that this Court issued the necessary directions
extracted above.
(l) Last of all reference was made to the decision of this Court in
Akhil Bhartiya Upbhokta Congress Vs. State of Madhya Pradesh & Ors., (2011)
5 SCC 29:
65. What needs to be emphasised is that the State and/or its
agencies/instrumentalities cannot give largesse to any person
according to the sweet will and whims of the political entities and/or
officers of the State. Every action/decision of the State and/or its
agencies/instrumentalities to give largesse or confer benefit must be
founded on a sound, transparent, discernible and well-defined policy,
which shall be made known to the public by publication in the Official
Gazette and other recognised modes of publicity and such policy must
be implemented/executed by adopting a non-discriminatory and non-
arbitrary method irrespective of the class or category of persons
proposed to be benefited by the policy. The distribution of largesse
like allotment of land, grant of quota, permit licence, etc. by the
State and its agencies/instrumentalities should always be done in a
fair and equitable manner and the element of favouritism or nepotism
shall not influence the exercise of discretion, if any, conferred upon
the particular functionary or officer of the State.
66. We may add that there cannot be any policy, much less, a rational
policy of allotting land on the basis of applications made by
individuals, bodies, organisations or institutions dehors an
invitation or advertisement by the State or its
agency/instrumentality. By entertaining applications made by
individuals, organisations or institutions for allotment of land or
for grant of any other type of largesse the State cannot exclude other
eligible persons from lodging competing claim. Any allotment of land
or grant of other form of largesse by the State or its
agencies/instrumentalities by treating the exercise as a private
venture is liable to be treated as arbitrary, discriminatory and an
act of favouritism and/or nepotism violating the soul of the equality
clause embodied in Article 14 of the Constitution.
67. This, however, does not mean that the State can never allot land
to the institutions/organisations engaged in educational, cultural,
social or philanthropic activities or are rendering service to the
society except by way of auction. Nevertheless, it is necessary to
observe that once a piece of land is earmarked or identified for
allotment to institutions/organisations engaged in any such activity,
the actual exercise of allotment must be done in a manner consistent
with the doctrine of equality. The competent authority should, as a
matter of course, issue an advertisement incorporating therein the
conditions of eligibility so as to enable all similarly situated
eligible persons, institutions/organisations to participate in the
process of allotment, whether by way of auction or otherwise. In a
given case the Government may allot land at a fixed price but in that
case also allotment must be preceded by a wholesome exercise
consistent with Article 14 of the Constitution.”

(emphasis is mine)
The observations of this Court in the judgment extracted above neither need
any summarization, nor any further elaboration.
(m) Surely, there cannot be any escape from a reference to the
judgment rendered by this Court in Centre for Public Interest Litigation
and others v. Union of India & Ors., (2012) 3 SCC 1, which according to the
preamble of the Presidential reference, seems to be the reason why the
reference came to be made. During the course of hearing extensive debate,
between rival parties, ensued on the effect of the observations recorded by
this Court in paragraphs 95 and 96 of the judgment. The aforesaid
paragraphs are being extracted hereinbelow:

“95. This Court has repeatedly held that wherever a contract is to be
awarded or a licence is to be given, the public authority must adopt a
transparent and fair method for making selections so that all eligible
persons get a fair opportunity of competition. To put it differently,
the State and its agencies/instrumentalities must always adopt a
rational method for disposal of public property and no attempt should
be made to scuttle the claim of worthy applicants. When it comes to
alienation of scarce natural resources like spectrum etc., it is the
burden of the State to ensure that a non-discriminatory method is
adopted for distribution and alienation, which would necessarily
result in protection of national/public interest.

96. In our view, a duly publicized auction conducted fairly and
impartially is perhaps the best method for discharging this burden and
the 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. In other words, while transferring or alienating the natural
resources, the State is duty bound to adopt the method of auction by
giving wide publicity so that all eligible persons can participate in
the process.”
In so far as the controversy in the aforesaid case is concerned, it would
be relevant to mention that the petitioner approached this Court by
invoking the extraordinary writ jurisdiction of this Hon’ble Court under
Article 32 of the Constitution of India. The petition came to be filed as
a cause in public interest. The reason which promoted the petitioner to
approach this Court was that the Union had adopted the policy of “first
come first serve” for allocation of licences of spectrum. It was alleged
that the aforesaid policy involved the element of pure chance or accident.
It was asserted on behalf of the petitioners that invocation of the
principles of “first come first serve” for permission to use natural
resources had inherently dangerous implications. The implications
expressed by the petitioners were duly taken into consideration and the
plea raised on behalf of the petitioners was accepted. Thereupon, the
following directions came to be issued in paragraph 102 of the judgment:
“102. In the result, the writ petitions are allowed in the following
terms:

(i) The licences granted to the private Respondents on or
after 10.1.2008 pursuant to two press releases issued on
10.1.2008 and subsequent allocation of spectrum to the licensees
are declared illegal and are quashed.

(ii) The above direction shall become operative after four
months.

(iii) Keeping in view the decision taken by the Central
Government in 2011, TRAI shall make fresh recommendations for
grant of licence and allocation of spectrum in 2G band in 22
Service Areas by auction, as was done for allocation of spectrum
in 3G band.

(iv) The Central Government shall consider the recommendations
of TRAI and take appropriate decision within next one month and
fresh licences be granted by auction.

(v) Respondent Nos. 2, 3 and 9 who have been benefited at the
cost of Public Exchequer by a wholly arbitrary and
unconstitutional action taken by the DoT for grant of UAS
Licences and allocation of spectrum in 2G band and who off-
loaded their stakes for many thousand crores in the name of
fresh infusion of equity or transfer of equity shall pay cost of
Rs. 5 crores each. Respondent Nos. 4, 6, 7 and 10 shall pay cost
of Rs. 50 lakhs each because they too had been benefited by the
wholly arbitrary and unconstitutional exercise undertaken by the
DoT for grant of UAS Licences and allocation of spectrum in 2G
band. We have not imposed cost on the Respondents who had
submitted their applications in 2004 and 2006 and whose
applications were kept pending till 2007.

(vi) Within four months, 50% of the cost shall be deposited
with the Supreme Court Legal Services Committee for being used
for providing legal aid to poor and indigent litigants. The
remaining 50% cost shall be deposited in the funds created for
Resettlement and Welfare Schemes of the Ministry of Defence.

(vii) However, it is made clear that the observations made in
this judgment shall not, in any manner, affect the pending
investigation by the CBI, Directorate of Enforcement and Ors.
agencies or cause prejudice to those who are facing prosecution
in the cases registered by the CBI or who may face prosecution
on the basis of chargesheet(s) which may be filed by the CBI in
future and the Special Judge, CBI shall decide the matter
uninfluenced by this judgment. We also make it clear that this
judgment shall not prejudice any person in the action which may
be taken by other investigating agencies under Income Tax Act,
1961, Prevention of Money Laundering Act, 2002 and other similar
statutes.”

It needs to be noticed that a review petition came to be filed by the Union
against the instant judgment. The same, however, came to be withdrawn
without any reservations. During the course of hearing of the instant
petition, the Learned Attorney General for India informed this Court that
the Union had decided to give effect to the judgment, in so far as the
allocation of spectrum is concerned. In the above view of the matter, one
only needs to notice the observations recorded by this Court in paragraphs
95 and 96 extracted hereinabove. A perusal of the aforesaid paragraphs
reveals, that in line with the judgments rendered by this Court
interpreting Article 14 of the Constitution of India, this Court yet again
held, that while awarding a contact or a licence, the executive must adopt
a transparent and fair method. The executive must ensure, that all
eligible persons get a fair opportunity to compete. For awarding contracts
or licences, the executive should adopt a rational method, so as to ensure
that claims of worthy applicants are not scuttled. On the subject of
natural resources like spectrum, etc., this Court held that it was the
bounden duty of the State to ensure the adoption of a non-discriminatory
method which would result in protection of national/public interest. This
Court also expressed the view that “perhaps” the best method for doing so
would be through a duly publicized auction conducted fairly and
impartially. Thus viewed, it was affirmed, that the State was duty bound
to adopt the method of auction by giving wide publication while alienating
natural resources, so as to ensure that all eligible persons can
participate in the process.
7. The parameters laid by this Court on the scope of applicability of
Article 14 of the Constitution of India, in matters where the State, its
instrumentalities, and their functionaries, are engaged in contractual
obligations (as they emerge from the judgments extracted in paragraph 6
above) are being briefly paraphrased. For an action to be able to
withstand the test of Article 14 of the Constitution of India, it has
already been expressed in the “main opinion” that it 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. The judgments referred to, endorse
all those requirements where the State, its instrumentalities, and their
functionaries, are engaged in contractual transactions. Therefore, all
“governmental policy” drawn with reference to contractual matters, it has
been held, must conform to the aforesaid parameters. While Article 14 of
the Constitution of India permits a reasonable classification having a
rational nexus to the object sought to be achieved, it does not permit the
power of pick and choose arbitrarily out of several persons falling in the
same category. Therefore, a criteria or procedure has to be adopted so
that the choice among those falling in the same category is based on
reason, fair play and non-arbitrariness. Even if there are only two
contenders falling in the zone of consideration, there should be a clear,
transparent and objective criteria or procedure to indicate which out of
the two is to be preferred. It is this, which would ensure transparency.
8. Another aspect which emerges from the judgments (extracted in
paragraph 6 above) is that, the State, its instrumentalities and their
functionaries, while exercising their executive power in matters of trade
or business etc. including making of contracts, should be mindful of public
interest, public purpose and public good. This is so, because every holder
of public office by virtue of which he acts on behalf of the State, or its
instrumentalities, is ultimately accountable to the people in whom
sovereignty vests. As such, all powers vested in the State are meant to be
exercised for public good and in public interest. Therefore, the question
of unfettered discretion in an executive authority, just does not arise.
The fetters on discretion are – a clear, transparent and objective criteria
or procedure which promotes public interest, public purpose and public
good. A public authority is ordained, therefore to act, reasonably and in
good faith and upon lawful and relevant grounds of public interest.
9. Observations recorded by this Court on the subject of revenue
returns, during the course of the States engagements in commercial ventures
(emerging from the judgments extracted in paragraph 6 above), are being
summarized hereunder. 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. And in that sense, it has been concluded, the wealth
that belongs to the nation is lost. In Reliance Natural Resources Ltd.’s
case (supra), the Union of India adopted the position, that natural
resources are vested in the State as a matter of trust, for and on behalf
of the citizens of the country. It was also acknowledged, that it was the
solemn duty of the State, to protect those natural resources. More
importantly, it was accepted, that natural resources must always be used in
the common interest of the citizens of the country, and not for private
interest.
10. Based on the legal/constitutional parameters/requirements culled
out in the preceding three paragraphs, I shall venture an opinion on
whether there are circumstances in which natural resources ought to be
disposed of only by ensuring maximum returns. For this, I shall place
reliance on a conclusion drawn in the “main opinion”, namely, “Distribution
of natural resources is a policy decision, and the means adopted for the
same are thus, executive prerogatives. However, when such a policy
decision is not backed by a social or welfare purpose, and precious and
scarce natural resources are alienated for commercial pursuits of profit
maximizing private entrepreneurs, adoption of means other than those that
are competitive and maximize revenue, may be arbitrary and face the wrath
of Article 14 of the Constitution.” (refer to paragraph 149 of the “main
opinion”). I am in respectful agreement with the aforesaid conclusion, and
would accordingly opine, that when natural resources are made available by
the State to private persons for commercial exploitation exclusively for
their individual gains, the State’s endeavour must be towards maximization
of revenue returns. This alone would ensure, that the fundamental right
enshrined in Article 14 of the Constitution of India (assuring equality
before the law and equal protection of the laws), and the directive
principle contained in Article 39(b) of the Constitution of India (that
material resources of the community are so distributed as best to subserve
the common good), have been extended to the citizens of the country.
11. A similar conclusion would also emerge in a slightly different
situation. This Court in a case dealing with a challenge to the allotment
of retail outlets for petroleum products [Common Cause, A Registered
Society Vs. Union of India & Ors., (1996) 6 SCC 530] has held, that Article
14 of the Constitution of India, does not countenance discretionary power
which is capable of being exercised arbitrarily. While accepting that
Article 14 of the Constitution of India permits a reasonable classification
having a rational nexus to the object sought to be achieved, it was held
that Article 14 of the Constitution of India does not permit the State to
pick and choose arbitrarily out of several persons falling in the same
category. A transparent and objective criteria/procedure has to be evolved
so that the choice amongst those belonging to the same class or category is
based on reason, fair play, and non-arbitrariness. Envisage a situation as
the one expressed above, where by reasonable classification based on some
public purpose, the choice is limited to a set of private persons, amongst
whom alone, the State has decided to dispose of natural resources. Herein
again, in my opinion, if the participation of private persons is for
commercial exploitation exclusively for their individual gains, then the
State’s endeavour to maximize revenue alone, would satisfy the
constitutional mandate contained in Articles 14 and 39(b) of the
Constitution of India.
12. In the “main opinion”, it has been concluded, that auction is not
a constitutional mandate, in the nature of an absolute principle which has
to be applied in all situations. And as such, auction cannot be read into
Article 14 of the Constitution of India, so as to be applied in all
situations (refer to paragraph 107 of the “main opinion”). Auction is
certainly not a constitutional mandate in the manner expressed, but it can
surely be applied in some situations to maximize revenue returns, to
satisfy legal and constitutional requirements. It is, therefore, that I
have chosen to express the manner of disposal of natural resources by using
the words “maximization of revenue” in place of the term “auction”, in the
foregoing two paragraphs. But it may be pointed out, the Attorney General
for India had acknowledged during the course of hearing, that auction by
way of competitive bidding was certainly an indisputable means, by which
maximization of revenue returns is assured (in this behalf other
observations recorded by me in paragraph 3 above may also be kept in mind).
In the aforesaid view of the matter, all that needs to be stated is, that
if the State arrives at the conclusion, in a given situation, that maximum
revenue would be earned by auction of the natural resource in question,
then that alone would be the process which it would have to adopt, in the
situations contemplated in the foregoing two paragraphs.

13. One is compelled to take judicial notice of the fact, that
allotment of natural resources is an issue of extensive debate in the
country, so much so, that the issue of allocation of such resources had
recently resulted in a washout of two sessions of Parliament. The current
debate on allotment of material resources has been prompted by a report
submitted by the Comptroller and Auditor General, asserting extensive loss
in revenue based on inappropriate allocations. The report it is alleged,
points out that private and public sector companies had made windfall gains
because the process of competitive bidding had not been adopted. The
country witnessed a similar political spat a little while earlier, based on
the allocation of the 2G spectrum. On that occasion the controversy was
brought to this Court by way of a public interest litigation, the judgment
whereof is reported as Centre for Public Interest Litigation Vs. Union of
India, (2012) 3 SCC 1. Extensive revenue loss, in the course of allocation
of the 2G spectrum was duly noticed. On each occasion when the issue of
allocation of natural resources, results in an alleged loss of revenue, it
is portrayed as a loss to the nation. The issue then becomes a subject
matter of considerable debate at all levels of the Indian polity. Loss of
one, essentially entails a gain to the other. On each such occasion loss
to the nation, translates into the identification of private players as the
beneficiaries. If one were to accept the allegations appearing in the
media, on account of defects in the disposal mechanism, private parties
have been beneficiaries to the tune of lakhs of crores of Indian Rupees,
just for that reason. In the current debate, rival political parties have
made allegations against those responsible, which have been repudiated with
counter allegations. This Court is not, and should never be seen to be, a
part of that debate. But it does seem, that the Presidential reference is
aimed at invoking this Court’s advisory jurisdiction to iron out the
creases, so that legal and constitutional parameters are correctly
understood. This would avoid such controversies in future. It is
therefore, that an opinion is also being rendered by me, on the fourth
question, namely, “What is the permissible scope for interference by courts
with policy making by the Government including methods for disposal of
natural resources?” On this the advice tendered in the “main opinion”
inter alia expresses, “We may, however, hasten to add that the Court can
test the legality and constitutionality of these methods. When questioned,
the Courts are entitled to analyse the legal validity of different means of
distribution and give a constitutional answer as to which methods are ultra
vires and intra vires the provisions of the Constitution. Nevertheless, it
cannot and will not compare which policy is fairer than the other, but, if
a policy or law is patently unfair to the extent that it falls fouls of the
fairness requirement of Article 14 of the Constitution, the Court would not
hesitate in striking it down.”, (refer to paragraph 146 of the “main
opinion”). While fully endorsing the above conclusion, I wish to further
elucidate the proposition.

Before adverting to anything else, it is essential to refer to Article
39 (b) of the Constitution of India.
“39. Certain principles of policy to be followed by the State –
The State shall in particular, direct its policy towards
securing –
(b) that the ownership and control of the material resources of
the community are so distributed as best to subserve the common
good;
(emphasis is mine)

The mandate contained in the Article extracted above envisages, 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.

The legality and constitutionality of policy is one matter, and the
manner of its implementation quite another. Even at the implementation
stage a forthright and legitimate policy, may take the shape of an
illegitimate stratagem (which has been illustrated at a later juncture
hereinafter). Since the Presidential reference is not based on any
concrete fact situation, it would be appropriate to hypothetically create
one. This would enable those responsible for decision making, to be able
to appreciate the options available to them, without the fear of
trespassing beyond the limitations of legality and constitutionality. This
would also ensure that a truly meaningful opinion has been rendered. The
illustration, that has been chosen is imaginary, and therefore, should not
be taken as a reference to any similar real life
situation(s)/circumstance(s). The focus in the instant consideration is
limited to allocation of natural resources for private commercial
exploitation, i.e., where a private player will be the beneficiary of such
allocation, and will exploit the natural resource to make personal profits
therefrom.

The illustration chosen will be used to express an opinion on matters
which are governed by statutory provisions, as also, those which are based
on governmental policy. This is so because in so far as the present
controversy is concerned, the parameters for distribution of natural
resources must be examined under these two heads separately.

Coal is a natural resource. It shall constitute the illustrative
natural resource for the present consideration. Let us assume a
governmental decision to allocate coal lots for private commercial
exploitation. First, the legislative policy angle. Reference may be made
to the Mines and Minerals (Development and Regulation) Act, 1957
(hereinafter referred to as, the MMDR Act). The enactment deals
exclusively with natural resources. Section 11A of the MMDR Act has been
chosen as the illustrative provision, to demonstrate how a forthright
legitimate legislative policy, may take the shape of an illegitimate
stratagem. The choice of Section 11A aforesaid is on account of the fact
that it was added to the MMDR Act only on 13.2.2012, and as such, there may
not have been, as of now, any actual allocation of coal lots based thereon.
Section 11A of the MMDR Act, is being placed hereunder :
“11A. Procedure in respect of coal or lignite – The Central
Government may, for the purpose of granting reconnaissance
permit, prospecting licence or mining lease in respect of an
area containing coal or lignite, select, through auction by
competitive bidding on such terms and conditions as may be
prescribed, a company engaged in, –
(i) production of iron and steel;
(ii) generation of power;
(iii) washing of coal obtained from a
mine; or
(iv) such other end use as
the Central Government may, by
notification in the Official
Gazette, specify, and the State Government shall
grant such reconnaissance permit, prospecting
licence or mining lease in respect of coal or lignite to
such company as selected through auction by competitive
bidding under this section:
Provided that the auction by competitive bidding shall
not be applicable to an area containing coal or lignite,-
(a) where such area is considered for allocation to a
Government company or corporation for mining or such
other specified end use;
(b) where such area is considered for allocation to a
company or corporation that has been awarded a power
project on the basis of competitive bids
for tariff (including Ultra Mega Power Projects).”

Explanation – For the purposes of this section “company” means
a company as defined in section 3 of the Companies Act, 1956 and
includes a foreign company within the meaning of section 591 of
that Act.
(emphasis is mine)
For the 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 the grant of 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 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. As
expressed in the “main opinion” the facts of each individual case, will be
the deciding factor for such determination. In the absence of any such
challenge, the legislative policy would be binding and enforceable. In
such an eventuality, those who do not fall within the zone of
consideration, would be precluded from the process of competitive bidding
for a mining lease over an area having coal deposits. In the process of
auction through competitive bidding, if the objective is to best subserve
the common good (as in Article 39(b) of the Constitution of India) the
legislative policy would be fully legitimate. If however, the expressed
legislative policy has no nexus to any legitimate objective, or it
transgresses the mandate of distribution of material resources to “best
subserve the common good”, it may well be unfair, unreasonable or
discriminatory.

For an effective analysis, Section 11A of the MMDR Act needs a further
closer examination. Section 11A aforesaid, as an exception to the
legislative policy referred to in the foregoing paragraph, also provides
for the grant of a mining lease for coal to a private player, without
following the auction route. The provision contemplates the grant of a
mining lease for coal, without any reciprocal monetary or other
consideration from the lessee. The proviso in section 11A of the MMDR Act,
excludes the auction route where the beneficiary is engaged in power
generation. Such exclusion, is contemplated only when the power generating
concern, was awarded the power project, on the basis of “competitive bids
for tariff”. It is important to highlight, that there is no express
assurance in section 11A aforesaid, that every entrepreneur who sets up a
power project, having succeeded on the basis of competitive bidding, would
be allotted a coal mining lease. But if such an allotment is actually
made, it is apparent, that such entrepreneur would get the coal lot,
without having to participate in an auction, free of cost. The legislative
policy incorporated in Section 11A of the MMDR Act, if intended to best
subserve the common good, may well be valid, even in a situation where the
material resource is being granted free of cost. What appears to be free
of cost in the proviso in Section 11A of the MMDR Act, is in actuality
consideration enmeshed in providing electricity at a low tariff. The
aforesaid proviso may be accepted as fair, and may not violate the mandate
contained in Article 14 of the Constitution of India, or even the directive
principles contained in Article 39(b) of the Constitution of India.

Hypothetically, assume a competitive bidding process for tariff,
amongst private players interested in a power generation project. The
private party which agrees to supply electricity at the lowest tariff would
succeed in such an auction. The important question is, if the private
party who succeeds in the award of the project, is granted a mining lease
in respect of an area containing coal, free of cost, would such a grant
satisfy the test of being fair, reasonable, equitable and impartial. The
answer to the instant query would depend on the facts of each individual
case. Therefore, the answer could be in the affirmative, as well as, in
the negative. Both aspects of the matter are being explained in the
succeeding paragraph.

Going back to the hypothetical illustration based on Section 11A of
the MMDR Act. One would add some further facts so as to be able to
effectively project the legal point of view. If the bidding process to
determine the lowest tariff has been held, and the said bidding process has
taken place without the knowledge, that a coal mining lease would be
allotted to the successful bidder, yet the successful bidder is awarded a
coal mining lease. Would such a grant be valid? In the aforesaid fact
situation, the answer to the question posed, may well be in the negative.
This is so because, the competitive bidding for tariff was not based on the
knowledge of gains, that would come to the vying contenders, on account of
grant of a coal mining lease. Such a grant of a coal mining lease would
therefore have no nexus to the “competitive bid for tariff”. Grant of a
mining lease for coal in this situation would therefore be a windfall,
without any nexus to the object sought to be achieved. In the bidding
process, the parties concerned had no occasion to bring down the
electricity tariff, on the basis of gains likely to accrue to them, from
the coal mining lease. In this case, a material resource would be deemed
to have been granted without a reciprocal consideration i.e., free of cost.
Such an allotment may not be fair and may certainly be described as
arbitrary, and violative of the Article 14 of the Constitution of India.
Such an allotment having no nexus to the objective of subserving the common
good, would fall foul even of the directive principle contained in Article
39(b) of the Constitution of India. Therefore, a forthright and legitimate
policy, on account of defective implementation, may become unacceptable in
law.

In a slightly changed factual scenario, the conclusion may well be
different. If before the holding the process of auction, for the award of
a power project (based on competitive bids for tariff), it is made known to
the contenders, that the successful bidder would be entitled to a mining
lease over an area containing coal, those competing for the power project
would necessarily incorporate the profit they were likely to make from such
mining lease. While projecting the tariff at which they would supply
electricity, they would be in a position to offset such profits from their
costs. This would result in an in an opportunity to the contenders to
lower the tariff to a level lower than would have been possible without the
said lease. In such a situation the gains from the coal mining lease,
would be enmeshed in the competitive bidding for tariff. Therefore, it
would not be just to assume in the instant sequence of facts, that the coal
lot has been granted free of cost. One must read into the said grant, a
reciprocal consideration to provide electricity at a lower tariff. In the
instant factual scenario, the allotment of the mining lease would be deemed
to be aimed at “subserving the common good” in terms of Article 39(b) of
the Constitution of India. Therefore even the allotment of such a mining
lease, which appears to result in the allocation of a natural resource free
of cost, may well satisfy the test of fairness and reasonableness
contemplated in Article 14 of the Constitution of India. Moreso, because
a fair playing field having been made available to all those competing for
the power project, by making them aware of the grant of a coal mining
lease, well before the bidding process. The question of favouritism
therefore would not arise. Would such a grant of a natural resource, free
of cost, be valid? The answer to the query, in the instant fact situation,
may well be in the affirmative.

The policy of allocation of natural resources for public good can be
defined by the legislature, as has been discussed in the foregoing
paragraphs. Likewise, 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. 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 (refer to paragraphs 10 to 12 of my
instant opinion).

I would therefore conclude by stating 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.
……………………….J.
(JAGDISH SINGH KHEHAR)
NEW DELHI;
SEPTEMBER 27, 2012.
———————–
[1] (2012) 3 SCC 1

[2] [1951] S.C.R. 747
[3] [1960] 3 S.C.R. 250
[4] [1959] S.C.R. 995
[5] [1965] 1 S.C.R. 413
[6] (1974) 2 SCC 33
[7] (1979) 1 SCC 380
[8] 1993 Supp (1) SCC 96 (II)
[9] (1998) 7 SCC 739
[10] (1994) 6 SCC 360

[11] [1934] A.C. 586
[12] [1959] Supp. 1 S.C.R. 806

[13] A.I.R. (30) 1943 FC 13
[14] 1991 Supp (1) SCC 240

[15] (2002) 4 SCC 388
[16] [1949-50] F.C.R. 595
[17] AIR 1954 SC 636
[18] (1993) 4 SCC 441

[19] (2011) 12 SCC 615
[20] (1987) 1 SCC 213
[21] (1992) 4 SCC 363
[22] (2006) 1 SCC 275
[23] (2004) 3 SCC 75
[24] (2003) 6 SCC 697
[25] 36 L ED 1018 : 146 U.S. 387 (1892)
[26] (1997) 1 SCC 388
[27] (2004) 3 SCC 214
[28] (2006) 3 SCC 549
[29] (2009) 3 SCC 571
[30] (2010) 7 SCC 1
[31] (2011) 5 SCC 29
[32] (1987) 2 SCC 295

[33] (2007) 3 SCC 184; Para 21
[34] [1968] 3 SCR 251
[35] 1959 Supp (1) SCR 528- “Coming then to the language of the
Article it must be noted, first and foremost that this Article is, in
form, an admonition addressed to the State and does not directly purport
to confer any right on any person as some of the other Articles, e.g.,
Article 19, do. The obligation thus imposed on the State, no doubt,
ensures for the benefit of all persons, for, as a necessary result of the
operation of this Article, they all enjoy equality before the law. That
is, however, the indirect, though necessary and inevitable, result of the
mandate. The command of the Article is directed to the State and the
reality of the obligation thus imposed on the State is the measure of the
fundamental right which every person within the territory of India is to
enjoy.”
[36] AIR 1955 SC 191
[37] [1959] 1 SCR 279
[38] (1974) 4 SCC 3
[39] (1978) 1 SCC 248
[40] (1981) 1 SCC 722
[41] (1979) 3 SCC 489 : AIR 1979 SC 1628
[42] (2002) 2 SCC 188
[43] (2001) 2 SCC 386
[44] (1996) 3 SCC 709
[45] (1981) 4 SCC 335
[46] (1973) 4 SCC 225
[47] 1952 SCR 284 at pp. 297
[48] 330 U.S. 552
[49] 1975 (Supp) SCC 1
[50] (1984) 1 SCC 515

[51] (1977) 4 SCC 471
[52] (1972) 2 SCC 788
[53] (1980) 4 SCC 1

[54] 1988) 1 SCC 166

[55] (1997) 7 SCC 592
[56] (2000) 8 SCC 262
[57] (2003) 8 SCC 100
[58] (2009) 7 SCC 561
[59] (1981) 4 SCC 675
[60] 94 L Ed 381 : 338 US 604 (1950)
[61] (1986) Supp SCC 20
[62] (1970) 1 SCC 248

[63] 354 US 457
[64] (1994) 2 SCC 691
[65] (1996) 2 SCC 405
[66] (2002) 2 SCC 333
[67] (1992) 2 SCC 343

[68] [1978] 3 SCC 459
[69] (2011) 7 SCC 639

 

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