· 7 years ago · Dec 09, 2018, 02:52 AM
1 REPORTABLE
2 IN THE SUPREME COURT OF INDIA
3
4 ADVISORY JURISDICTION
5
6 RE: SPECIAL REFERENCE NO.1 OF 2012
7 [Under Article 143(1) of the Constitution of India]
8
9
10
11 O P I N I O N
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13
14
15D.K. JAIN, J. [FOR S.H. KAPADIA, CJ, HIMSELF,
16 DIPAK MISRA & RANJAN GOGOI, JJ.]
17
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19
20
21 In exercise of powers conferred under Article 143(1) of the
22Constitution of India, the President of India has on 12th April, 2012, made
23the present Reference. The full text of the Reference (sans the annexures)
24is as follows:
25 “WHEREAS in 1994, the Department of Telecommunication, Government
26 of India (“GOIâ€), issued 8 Cellular Mobile Telephone Services Licenses
27 (“CMTS Licensesâ€), 2 in each of the four Metro cities of Delhi,
28 Mumbai, Kolkata and Chennai for a period of 10 years (the “1994
29 Licensesâ€). The 1994 licensees were selected based on rankings
30 achieved by them on the technical and financial evaluation based on
31 parameters set out by the GoI in the tender and were required to pay a
32 fixed licence fee for initial three years and subsequently based on
33 number of subscribers subject to minimum commitment mentioned in the
34 tender document and licence agreement. The 1994 Licenses issued by
35 GoI mentioned that a cumulative maximum of upto 4.5 MHz in the 900 MHz
36 bands would be permitted based on appropriate justification. There
37 was no separate upfront charge for the allocation of Spectrum to the
38 licensees, who only paid annual Spectrum usage charges, which will be
39 subject to revision from time to time and which under the terms of the
40 license bore the nomenclature “licence fee and royaltyâ€. A copy of
41 the 1994 Licenses, along with a table setting out the pre-determined
42 Licence Fee as prescribed by DoT in the Tender, is annexed hereto as
43 Annexure I (Colly).
44
45 WHEREAS in December 1995, 34 CMTS Licenses were granted based on
46 auction for 18 telecommunication circles for a period of 10 years (the
47 “1995 Licensesâ€). The 1995 Licenses mentioned that a cumulative
48 maximum of up to 4.4 MHz in the 900 MHz bands shall be permitted to
49 the licensees, based on appropriate justification. There was no
50 separate upfront charge for allocation of spectrum to the licensees
51 who were also required to pay annual spectrum usage charges, which
52 under the terms of the license bore the nomenclature “licence fee and
53 royalty†which will be subject to revision from time to time. A copy
54 of the 1995 Licenses, along with a table setting out the fees payable
55 by the highest bidder, is annexed hereto as Annexure II (Colly).
56
57 WHEREAS in 1995, bids were also invited for basic telephone
58 service licenses (“BTS Licensesâ€) with the license fee payable for a
59 15 year period. Under the terms of the BTS Licenses, a licensee could
60 provide fixed line basic telephone services as well as wireless basic
61 telephone services. Six licenses were granted in the year 1997-98 by
62 way of auction through tender for providing basic telecom services
63 (the “1997 BTS Licensesâ€). The license terms, inter-alia, provided
64 that based on the availability of the equipment for Wireless in Local
65 Loop (WLL), in the world market, the spectrum in bands specified
66 therein would be considered for allocation subject to the conditions
67 mentioned therein. There was no separate upfront charge for
68 allocation of spectrum and the licensees offering the basic wireless
69 telephone service were required to pay annual Spectrum usage charges,
70 which under the terms of the license bore the nomenclature “licence
71 fee and royaltyâ€. A sample copy of the 1997 BTS Licenses containing
72 the table setting out the license fees paid by the highest bidder is
73 annexed hereto as Annexure III (Colly).
74
75 WHEREAS in 1997, the Telecom Regulatory Authority of India Act,
76 1997 was enacted and the Telecom Regulatory Authority of India (the
77 “TRAIâ€) was established.
78
79 WHEREAS on 1st April, 1999, the New Telecom Policy 1999 (“NTP
80 1999â€) was brought into effect on the recommendation of a Group on
81 Telecom (“GoTâ€) which had been constituted by GoI. A copy of NTP 1999
82 is annexed hereto as Annexure IV. NTP 1999 provided that Cellular
83 Mobile Service Providers (“CMSPâ€) would be granted a license for a
84 period of 20 years on the payment of a one-time entry fee and licence
85 fee in the form of revenue share. NTP 1999 also provided that BTS
86 (Fixed Service Provider or FSP) Licenses for providing both fixed and
87 wireless (WLL) services would also be issued for a period of 20 years
88 on payment of a one-time entry fee and licence fee in the form of
89 revenue share and prescribed charges for spectrum usage, appropriate
90 level of which was to be recommended by TRAI. The licensees both
91 cellular and basic were also required to pay annual Spectrum usage
92 charges.
93
94 WHEREAS based on NTP 1999, a migration package for migration from
95 fixed license fee to one time entry fee and licence fee based on
96 revenue share regime was offered to all the existing licenses on 22nd
97 July, 1999. This came into effect on 1st August 1999. Under the
98 migration package, the licence period for all the CMTS and FSP
99 licensees was extended to 20 years from the date of issuance of the
100 Licenses.
101
102 WHEREAS in 1997 and 2000, CMTS Licenses were also granted in 2
103 and 21 Circles to Mahanagar Telephone Nigam Limited (“MTNLâ€) and
104 Bharat Sanchar Nigam Limited (“BSNLâ€) respectively (the “PSU
105 Licensesâ€). However, no entry fee was charged for the PSU Licenses.
106 The CMTS Licenses issued to BSNL and MTNL mentioned that they would be
107 granted GSM Spectrum of 4.4 + 4.4 MHz in the 900 MHz band. The PSU
108 Licensees were also required to pay annual spectrum usage charges. A
109 copy of the PSU Licenses is annexed hereto as Annexure V (Colly).
110
111 WHEREAS in January 2001, based on TRAI’s recommendation, DoT
112 issued guidelines for issuing CMTS Licenses for the 4th Cellular
113 Operator based on tendering process structured as “Multistage Informed
114 Ascending Bidding Processâ€. Based on a tender, 17 new CMTS Licenses
115 were issued for a period of 20 years in the 4 Metro cities and 13
116 Telecom Circles (the “2001 Cellular Licensesâ€). The 2001 Licenses
117 required that the licensees pay a one-time non refundable entry fee as
118 determined through auction as above and also annual license fee and
119 annual spectrum usage charges and there was no separate upfront charge
120 for allocation of spectrum. In accordance with the terms of tender
121 document, the license terms, inter-alia, provided that a cumulative
122 maximum of upto 4.4 MHz + 4.4 MHz will be permitted and further based
123 on usage, justification and availability, additional spectrum upto 1.8
124 MHz + 1.8 MHz making a total of 6.2 MHz + 6.2 MHz, may be considered
125 for assignment, on case by case basis, on payment of additional
126 Licence fee. The bandwidth upto maximum as indicated i.e. 4.4 MHz &
127 6.2 MHz as the case may be, will be allocated based on the Technology
128 requirements (e.g. CDMA @ 1.25 MHz, GSM @ 200 KHz etc.). The
129 frequencies assigned may not be contiguous and may not be same in all
130 cases, while efforts would be made to make available larger chunks to
131 the extent feasible. A copy of the 2001 Cellular Licenses, along with
132 a table setting out the fees payable by the highest bidder, is annexed
133 hereto as Annexure VI.
134
135 WHEREAS in 2001, BTS Licenses were also issued for providing both
136 fixed line and wireless basic telephone services on a continual basis
137 (2001 Basic Telephone Licenses). Service area wise one time Entry Fee
138 and annual license fee as a percentage of Adjusted Gross Revenue (AGR)
139 was prescribed for grant of BTS Licenses. The licence terms, inter-
140 alia, provided that for Wireless Access System in local area, not more
141 than 5 + 5 MHz in 824-844 MHz paired with 869-889 MHz band shall be
142 allocated to any basic service operator including existing ones on
143 FCFS basis. A detailed procedure for allocation of spectrum on FCFS
144 basis was given in Annexure-IX of the 2001 BTS license. There was no
145 separate upfront charge for allocation of spectrum and the Licensees
146 were required to pay revenue share of 2% of the AGR earned from
147 wireless in local loop subscribers as spectrum charges in addition to
148 the one time entry fee and annual license fee. A sample copy of the
149 2001 Basic Telephone License along with a table setting out the entry
150 fees is annexed hereto as Annexure VII.
151
152 WHEREAS on 27th October, 2003, TRAI recommended a Unified Access
153 Services Licence (“UASLâ€) Regime. A copy of TRAI’s recommendation is
154 annexed hereto as Annexure VIII.
155
156 WHEREAS on 11.11.2003, Guidelines were issued, specifying
157 procedure for migration of existing operators to the new UASL regime.
158 As per the Guidelines, all applications for new Access Services
159 License shall be in the category of Unified Access Services Licence.
160 Later, based on TRAI clarification dated 14.11.2003, the entry fee for
161 new Unified Licensee was fixed same as the entry fee of the 4th
162 cellular operator. Based on further recommendations of TRAI dated
163 19.11.2003, spectrum to the new licensees was to be given as per the
164 existing terms and conditions relating to spectrum in the respective
165 license agreements. A copy of the Guidelines dated 11.11.2003 is
166 annexed hereto as Annexure IX.
167
168 WHEREAS consequent to enhancement of FDI limit in telecom sector
169 from 49% to 74%, revised Guidelines for grant of UAS Licenses were
170 issued on 14.12.2005. These Guidelines, inter-alia stipulate that
171 Licenses shall be issued without any restriction on the number of
172 entrants for provision of Unified Access Services in a Service Area
173 and the applicant will be required to pay one time non-refundable
174 Entry, annual License fee as a percentage of Adjusted Gross Revenue
175 (AGR) and spectrum charges on revenue share basis. No separate
176 upfront charge for allocation of spectrum was prescribed. Initial
177 Spectrum was allotted as per UAS License conditions to the service
178 providers in different frequency bands, subject to availability.
179 Initially allocation of a cumulative maximum up to 4.4 MHz + 4.4 MHz
180 for TDMA based systems or 2.5 MHz + 2.5 MHz for CDMA based systems
181 subject to availability was to be made. Spectrum not more than 5 MHz
182 + 5 MHz in respect of CDMA system or 6.2 MHz + 6.2 MHz in respect of
183 TDMA based system was to be allocated to any new UAS licensee. A copy
184 of the UASL Guidelines dated 14.12.2005 is annexed hereto as Annexure
185 X.
186
187 WHEREAS after the introduction of the UASL in 2003 and until March
188 2007, 51 new UASL Licenses were issued based on policy of First Come-
189 First Served, on payment of the same entry fee as was paid for the
190 2001 Cellular Licenses (the “2003-2007 Licensesâ€) and the spectrum was
191 also allocated based on FCFS under a separate wireless operating
192 license on case by case basis and subject to availability. Licensees
193 had to pay annual spectrum usage charges as a percentage of AGR, there
194 being a no upfront charge for allocation of spectrum. A copy of the
195 2003-2007 License, along with a table setting out the fees payable, is
196 annexed hereto as Annexure XI (Colly).
197
198 WHEREAS on 28th August 2007, TRAI revisited the issue of new
199 licenses, allocation of Spectrum, Spectrum charges, entry fees and
200 issued its recommendations, a copy of which is annexed hereto as
201 Annexure XII. TRAI made further recommendations dated 16.07.2008
202 which is annexed hereto as Annexure XIII.
203
204 WHEREAS in 2007 and 2008, GoI issued Dual Technology Licences,
205 where under the terms of the existing licenses were amended to allow
206 licensees to hold a license as well as Spectrum for providing services
207 through both GSM and CDMA network. First amendment was issued in
208 December, 2007. All licensees who opted for Dual Technology Licences
209 paid the same entry fee, which was an amount equal to the amount
210 prescribed as entry fee for getting a new UAS licence in the same
211 service area. The amendment to the license inter-alia mentioned that
212 initially a cumulative maximum of upto 4.4 MHz + 4.4 MHz was to be
213 allocated in the case of TDMA based systems (@ 200 KHz per carrier or
214 30 KHz per carrier) and a maximum of 2.5 MHz + 2.5 MHz was to be
215 allocated in the case of CDMA based systems (@ 1.25 MHz per carrier),
216 on case by case basis subject to availability. It was also, inter-
217 alia, mentioned that additional spectrum beyond the above stipulation
218 may also be considered for allocation after ensuring optimal and
219 efficient utilization of the already allocated spectrum taking into
220 account all types of traffic and guidelines/criteria prescribed from
221 time to time. However, spectrum not more than 5 + 5 MHz in respect of
222 CDMS system and 6.2 + 6.2 MHz in respect of TDMA based system was to
223 be allocated to the licensee. There was no separate upfront charge
224 for allocation of Spectrum. However, Dual Technology licensees were
225 required to pay Spectrum usage charges in addition to the license fee
226 on revenue share basis as a percentage of AGR. Spectrum to these
227 licensees was allocated 10.01.2008 onwards.
228
229 WHEREAS Subscriber based criteria for CMTS was prescribed in the
230 year 2002 for allocation of additional spectrum of 1.8 + 1.8 MHz
231 beyond 6.2 + 6.2 MHz with a levy of additional spectrum usage charge
232 of 1% of AGR. The allocation criteria was revised from time to time.
233 A copy of the DoT letter dated 01.02.2002 in this regard is annexed
234 hereto as Annexure XIV.
235
236 WHEREAS for the spectrum allotted beyond 6.2 MHz, in the
237 frequency allocation letters issued by DoT May 2008 onwards, it was
238 mentioned inter-alia that allotment of spectrum is subject to pricing
239 as determined in future by the GoI for spectrum beyond 6.2 MHz + 6.2
240 MHz and the outcome of Court orders. However, annual spectrum usage
241 charges were levied on the basis of AGR, as per the quantum of
242 spectrum assigned. A sample copy of the frequency allocation letter
243 is annexed hereto as Annexure XV.
244
245 WHEREAS Spectrum for the 3G Band (i.e. 2100 MHz band) was
246 auctioned in 2010. The terms of the auction stipulated that, for
247 successful new entrants, a fresh license agreement would be entered
248 into and for existing licensees who were successful in the auction,
249 the license agreement would be amended for use of Spectrum in the 3G
250 band. A copy of the Notice inviting Applications and Clarifications
251 thereto are annexed hereto and marked as Annexure XVI (Colly). The
252 terms of the amendment letter provided, inter alia, that the 3G
253 spectrum would stand withdrawn if the license stood terminated for any
254 reason. A copy of the standard form of the amendment letter is
255 annexed hereto and marked as Annexure XVII.
256
257 WHEREAS letters of intent were issued for 122 Licenses for
258 providing 2G services on or after 10 January 2008, against which
259 licenses (the “2008 Licensesâ€) were subsequently issued. However,
260 pursuant to the judgment of this Hon’ble Court dated 2nd February,
261 2012 in Writ Petition (Civil) No.423 of 2010 (the “Judgmentâ€), the
262 2008 Licenses have been quashed. A copy of the judgment is annexed
263 hereto and marked Annexure XVIII.
264
265 WHEREAS the GoI has also filed an Interlocutory Application for
266 clarification of the Judgment, wherein the GoI has placed on record
267 the manner in which the auction is proposed to be held pursuant to the
268 Judgment and sought appropriate clarificatory orders/directions from
269 the Hon’ble Court. A copy of the Interlocutory Application is annexed
270 hereto and marked as Annexure XIX.
271
272 WHEREAS while the GoI is implementing the directions set out in
273 the Judgment at paragraph 81 and proceeding with a fresh grant of
274 licences and allocation of spectrum by auction, the GoI is seeking a
275 limited review of the Judgment to the extent it impacts generally the
276 method for allocation of national resources by the State. A copy of
277 the Review Petition is annexed hereto and marked as Annexure XX.
278
279 WHEREAS by the Judgment, this Hon’ble Court directed TRAI to
280 make fresh recommendations for grant of licenses and allocation of
281 Spectrum in the 2G band by holding an auction, as was done for the
282 allocation of Spectrum for the 3G licenses.
283
284 WHEREAS, in terms of the directions of this Hon’ble Court, GoI
285 would now be allocating Spectrum in the relevant 2G bands at prices
286 discovered through auction.
287
288 WHEREAS based on the recommendations of TRAI dated 11.05.2010
289 followed by further clarifications and recommendations, the GoI has
290 prescribed in February 2012, the limit for spectrum assignment in the
291 Metro Service Areas as 2x10MHz/2x6.25 MHz and in rest of the Service
292 Areas as 2x8MHz/2x5 MHz for GSM (900 MHz, 1800 MHz band)/CDMA(800 MHZ
293 band), respectively subject to the condition that the Licensee can
294 acquire additional spectrum beyond prescribed limit in the open market
295 should there be an auction of spectrum subject to the further
296 condition that total spectrum held by it does not exceed the limits
297 prescribed for merger of licenses i.e. 25% of the total spectrum
298 assigned in that Service Area by way of auction or otherwise. This
299 limit for CDMS spectrum is 10 MHz.
300
301 WHEREAS, in view of the fact that Spectrum may need to be
302 allocated to individual entities from time to time in accordance with
303 criteria laid down by the GoI, such as subscriber base, availability
304 of Spectrum in a particular circle, inter-se priority depending on
305 whether the Spectrum comprises the initial allocation or additional
306 allocation, etc., it may not always be possible to conduct an auction
307 for the allocation of Spectrum.
308
309 AND WHEREAS in view of the aforesaid, the auctioning of Spectrum
310 in the 2G bands may result in a situation where none of the Licensees,
311 using the 2G bands of 800 MHz., 900 MHz and 1800 MHz would have paid
312 any separate upfront fee for the allocation of Spectrum.
313
314 AND WHEREAS the Government of India has received various notices
315 from companies based in other countries, invoking bilateral investment
316 agreements and seeking damages against the Union of India by reason of
317 the cancellation/threat of cancellation of the licenses.
318
319 AND WHEREAS in the circumstance certain questions of law of far
320 reaching national and international implications have arisen,
321 including in relation to the conduct of the auction and the regulation
322 of the telecommunications industry in accordance with the Judgment and
323 FDI into this country in the telecom industry and otherwise in other
324 sectors.
325
326 Given that the issues which have arisen are of great public
327 importance, and that questions of law have arisen of public importance
328 and with such far reaching consequences for the development of the
329 country that it is expedient to obtain the opinion of the Hon’ble
330 Supreme Court of India thereon.
331
332 NOW THEREFORE, in exercise of powers conferred upon me by clause
333 (1) of Article 143 of the Constitution of India, I, Pratibha Devisingh
334 Patil, President of India, hereby refer the following questions to the
335 Supreme Court of India for consideration and report thereon, namely:
336
337 Q.1 Whether the only permissible method for disposal of all natural
338 resources across all sectors and in all circumstances is by the
339 conduct of auctions?
340
341 Q.2 Whether a broad proposition of law that only the route of auctions
342 can be resorted to for disposal of natural resources does not
343 run contrary to several judgments of the Supreme Court including
344 those of Larger Benches?
345
346 Q.3 Whether the enunciation of a broad principle, even though
347 expressed as a matter of constitutional law, does not really
348 amount to formulation of a policy and has the effect of
349 unsettling policy decisions formulated and approaches taken by
350 various successive governments over the years for valid
351 considerations, including lack of public resources and the need
352 to resort to innovative and different approaches for the
353 development of various sectors of the economy?
354
355 Q.4 What is the permissible scope for interference by courts with
356 policy making by the Government including methods for disposal
357 of natural resources?
358
359 Q.5 Whether, if the court holds, within the permissible scope of
360 judicial review, that a policy is flawed, is the court not
361 obliged to take into account investments made under the said
362 policy including investments made by foreign investors under
363 multilateral/bilateral agreements?
364
365 Q.6 If the answers to the aforesaid questions lead to an affirmation
366 of the judgment dated 02.02.2012 then the following questions
367 may arise, viz.
368
369 (i) whether the judgment is required to be given
370 retrospective effect so as to unsettle all licences issued
371 and 2G spectrum (800, 900, and 1800 MHz bands) allocated in
372 and after 1994 and prior to 10.01.2008?
373
374 (ii) whether the allocation of 2G spectrum in all
375 circumstances and in all specific cases for different
376 policy considerations would nevertheless have to be undone?
377
378 And specifically
379 iii) Whether the telecom licences granted in 1994 would be
380 affected?
381
382 iv) Whether the Telecom licences granted by way of basic
383 licences in 2001 and licences granted between the period
384 2003-2007 would be affected?
385
386 v) Whether it is open to the Government of India to take
387 any action to alter the terms of any licence to ensure a
388 level playing field among all existing licensees?
389
390 vi) Whether dual technology licences granted in 2007 and
391 2008 would be affected?
392
393 vii) Whether it is necessary or obligatory for the Government
394 of India to withdraw the Spectrum allocated to all
395 existing licensees or to charge for the same with
396 retrospective effect and if so on what basis and from
397 what date?
398
399 Q.7 Whether, while taking action for conduct of auction in accordance
400 with the orders of the Supreme Court, it would remain
401 permissible for the Government to:
402
403 (i) Make provision for allotment of Spectrum from time to
404 time at the auction discovered price and in accordance with
405 laid down criteria during the period of validity of the
406 auction determined price?
407
408 (ii) Impose a ceiling on the acquisition of Spectrum with the
409 aim of avoiding the emergence of dominance in the market by
410 any licensee/applicant duly taking into consideration TRAI
411 recommendations in this regard?
412
413 iii) Make provision for allocation of Spectrum at auction
414 related prices in accordance with laid down criteria in
415 bands where there may be inadequate or no competition
416 (for e.g. there is expected to be a low level of
417 competition for CDMA in 800 MHz band and TRAI has
418 recommended an equivalence ratio of 1.5 or 1.3X1.5 for
419 800 MHz and 900 MHz bands depending upon the quantum of
420 spectrum held by the licensee that can be applied to
421 auction price in 1800 MHz band in the absence of a
422 specific price for these bands)?
423
424 Q.8 What is the effect of the judgment on 3G Spectrum acquired by
425 entities by auction whose licences have been quashed by the said
426 judgment?
427
428
429 NEW DELHI;
430 DATED: 12 April 2012 PRESIDENT OF INDIAâ€
431
432
433
434 2. A bare reading of the Reference shows that it is occasioned by the
435 decision of this Court, rendered by a bench of two learned Judges on
436 2nd February, 2012 in Centre for Public Interest Litigation & Ors. Vs.
437 Union of India & Ors.[1] (for brevity “2G Caseâ€).
438 3. On receipt of the Reference, vide order dated 9th May, 2012, notice
439 was issued to the Attorney General for India. Upon hearing the
440 learned Attorney General, it was directed vide order dated 11th May,
441 2012, that notice of the Reference shall be issued to all the States
442 through their Standing Counsel; on Centre for Public Interest
443 Litigation (CPIL) and Dr. Subramanian Swamy (petitioners in the 2G
444 Case); as also on the Federation of Indian Chambers of Commerce and
445 Industry (FICCI) and Confederation of Indian Industry (CII), as
446 representatives of the Indian industry. On the suggestion of the
447 learned Attorney General, it was also directed (though not recorded in
448 the order), that the reference shall be dealt with in two parts viz.
449 in the first instance, only questions No. 1 to 5 would be taken up for
450 consideration and the remaining questions shall be taken up later in
451 the light of our answers to the first five questions.
452
453 4. At the commencement of the hearing of the Reference on 10th July,
454 2012, a strong objection to the maintainability of the Reference was
455 raised by the writ petitioners in the 2G Case. Accordingly, it was
456 decided to first hear the learned counsel on the question of validity
457 of the Reference.
458
459SUBMISSIONS ON MAINTAINABILITY:
460
461 5. Mr. Soli Sorabjee, learned senior counsel, appearing for CPIL,
462 strenuously urged that in effect and substance, the Reference seeks to
463 question the correctness of the judgment in the 2G Case, which is not
464 permissible once this Court has pronounced its authoritative opinion
465 on the question of law now sought to be raised. The learned counsel
466 argued that reference under Article 143(1) of the Constitution does
467 not entail appellate or review jurisdiction, especially in respect of
468 a judgment which has attained finality. According to the learned
469 counsel, it is evident from the format of the Reference that it does
470 not express or suggest any ‘doubt’ as regards the question of fact or
471 law relating to allocation of all natural resources, a sine-qua-non
472 for a valid reference. In support of the proposition, learned counsel
473 placed reliance on observations in earlier references - In Re: The
474 Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947
475 And The Part C States (Laws) Act, 1950[2], In Re: The Berubari Union
476 and Exchange of Enclaves Reference Under Article 143(1) of the
477 Constitution of India[3], In Re: The Kerala Education Bill, 195,7 In
478 Reference Under Article 143(1) Of The Constitution of India[4],
479 Special Reference No.1 of 1964[5] (commonly referred to as “Keshav
480 Singhâ€), In Re: Presidential Poll[6], In Re: The Special Courts Bill,
481 1978[7], In the Matter of : Cauvery Water Disputes Tribunal[8]
482 (hereinafter referred to as “Cauvery-IIâ€) and Special Reference No.1
483 of 1998 Re.[9]
484
485 6. Next, it was contended by the learned senior counsel that if for any
486 reason, the Executive feels that the 2G Case does not lay down a
487 correct proposition of law, it is open to it to persuade another
488 bench, before which the said judgment is relied upon, to refer the
489 issue to a larger bench for reconsideration. In short, the submission
490 was that an authoritative pronouncement, like the one in the 2G Case,
491 cannot be short circuited by recourse to Article 143(1).
492
493 7. Learned counsel also contended that the Reference as framed is of an
494 omnibus nature, seeking answers on hypothetical and vague questions,
495 and therefore, must not be answered. Commending us to In Re: The
496 Special Courts Bill, 1978 (supra) and several other decisions, learned
497 counsel urged that a reference under Article 143(1) of the
498 Constitution for opinion has to be on a specific question or
499 questions. It was asserted that by reason of the construction of the
500 terms of Reference, the manner in which the questions have been framed
501 and the nature of the answers proposed, this Court would be entitled
502 to return the Reference unanswered by pointing out the aforesaid
503 impediments in answering it. Lastly, it was fervently pleaded that if
504 the present Reference is entertained, it would pave the way for the
505 Executive to circumvent or negate the effect of inconvenient
506 judgments, like the decision in the 2G Case, which would not only set
507 a dangerous and unhealthy precedent, but would also be clearly
508 contrary to the ratio of the decision in Cauvery II.
509
510 8. Mr. Prashant Bhushan, learned senior counsel, while adopting the
511 arguments advanced by Mr. Soli Sorabjee, reiterated that from the
512 format of questions No.1 to 5, as well as from the review petition
513 filed by the Government in the 2G Case, it is clear that the present
514 Reference seeks to overrule the decision in the 2G Case by reading
515 down the direction that allowed only ‘auction’ as the permissible
516 means for allocation of all natural resource, in paragraphs 94 to 96
517 of the 2G Case, to the specific case of spectrum. It was argued by the
518 learned counsel that it is apparent from the grounds urged in the
519 review petition filed by the Government that it understood the ratio
520 of the 2G Case, binding them to the form of procedure to be followed
521 while alienating precious natural resources belonging to the people,
522 and yet it is seeking to use the advisory jurisdiction of this Court
523 as an appeal over its earlier decision. It was contended that even if
524 it be assumed that a doubt relating to the disposal of all natural
525 resources has arisen on account of conflict of decisions on the point,
526 such a conflict cannot be resolved by way of a Presidential reference;
527 that would amount to holding that one or the other judgments is
528 incorrectly decided, which, according to the learned counsel, is
529 beyond the scope of Article 143(1). Learned counsel alleged that the
530 language in which the Reference is couched, exhibits mala fides on the
531 part of the Executive. He thus, urged that we should refrain from
532 giving an opinion.
533
534 9. Dr. Subramanian Swamy, again vehemently objecting to the
535 maintainability of the Reference, on similar grounds, added that the
536 present Reference is against the very spirit of Article 143(1), which,
537 according to the constituent assembly debates, was meant to be invoked
538 sparingly, unlike the case here. It was pleaded that the Reference is
539 yet another attempt to delay the implementation of the directions in
540 the 2G Case. Relying on the decision of this Court in Dr. M. Ismail
541 Faruqui & Ors. Vs. Union of India & Ors.[10], Dr. Swamy submitted that
542 we will be well advised to return the Reference unanswered.
543
544 10. Mr. G.E. Vahanvati, the learned Attorney General for India, defending
545 the Reference, submitted that the plea regarding non-maintainability
546 of the Reference on the ground that it does not spell out a ‘doubt’,
547 is fallacious on a plain reading of the questions framed therein.
548 According to him, Article 143(1) uses the word ‘question’ which arises
549 only when there is a ‘doubt’ and the very fact that the President has
550 sought the opinion of this Court on the questions posed, shows that
551 there is a doubt in the mind of the Executive on those issues. It was
552 stressed that merely because the Reference does not use the word
553 ‘doubt’ in the recitals, as in other cited cases, does not imply that
554 in substance no doubt is entertained in relation to the mode of
555 alienation of all natural resources, other than spectrum, more so when
556 the questions posed for opinion have far reaching national and
557 international implications. It was urged that the content of the
558 Reference is to be appreciated in proper perspective, keeping in view
559 the context and not the form.
560
561 11. It was urged that maintainability and the discretion to decline to
562 answer a reference are two entirely different things. The question of
563 maintainability arises when ex-facie, the Presidential reference does
564 not meet the basic requirements of Article 143(1), contrastive to the
565 question of discretion, which is the power of the Court to decline to
566 answer a reference, for good reasons, once the reference is
567 maintainable. In support of the proposition, reliance was placed on
568 In Re: The Kerala Education Bill, 1957 (supra), Keshav Singh and In
569 Re: The Special Courts Bill, 1978 (supra). According to the learned
570 counsel, the question as to whether the reference is to be answered or
571 not, is not an aspect of maintainability, and is to be decided only
572 after hearing the reference on merits.
573
574 12. Learned Attorney General, while contesting the plea that in a
575 reference under Article 143(1), correctness or otherwise of earlier
576 decisions can never be gone into, submitted that in a Presidential
577 reference, there is no constitutional embargo against reference to
578 earlier decisions in order to clarify, restate or even to form a fresh
579 opinion on a principle of law, as long as an inter partes decision is
580 left unaffected. In support of the contention that in the past,
581 references have been made on questions in relation to the correctness
582 of judgments, learned counsel placed reliance on the decisions of this
583 Court In Re: The Delhi Laws Act, 1912 (supra), Special Reference No.1
584 of 1998 (supra), Keshav Singh (supra) and of the Privy Council In re
585 Piracy Jure Gentium[11]. It was asserted that it has been repeatedly
586 clarified on behalf of the Executive that the decision in the 2G Case
587 has been accepted and is not being challenged. The Reference was
588 necessitated by certain observations made as a statement of law in
589 the said judgment which require to be explicated. Referring to
590 certain observations in Re: The Berubari Union and Exchange of
591 Enclaves (supra), learned counsel submitted that this Court had
592 accepted that a reference could be answered to avoid protracted
593 litigation.
594
595 13. Learned Attorney General also contended that withdrawal of the review
596 petition by the Government is of no consequence ; its withdrawal does
597 not imply that the question about the permissible manner of disposal
598 of other natural resources, and the issues regarding the environment
599 for investment in the country, stood settled. Stoutly refuting the
600 allegation that the reference is mala fide, learned counsel submitted
601 that in In Re Presidential Poll (supra), it is clearly laid down that
602 the Court cannot question the bona fides of the President making the
603 reference.
604
605 14. Mr. T.R. Andhyarujina, learned senior counsel, voiced concerns arising
606 out of an apparent conflict between provisions of the statutes and the
607 judgment delivered in the 2G Case; specifically with reference to
608 Sections 10 and 11 of the Mines and Minerals (Regulation and
609 Development) Act, 1957 (for short, “MMRD Actâ€), which prescribe a
610 policy of preferential treatment and first come first served, unlike
611 the 2G Case, which according to the learned counsel only mandates
612 auction for all natural resources. He thus, urged this Court to
613 dispel all uncertainties regarding the true position of law after the
614 judgment in the 2G Case, by holding it as per incuriam in light of the
615 provisions of the MMRD Act and other statutes.
616
617 15. Mr. Harish Salve, learned senior counsel, appearing on behalf of CII,
618 while supporting the Reference, fervently urged that the contention
619 that the Reference deserves to be returned unanswered due to the
620 absence of the use of the word ‘doubt’ in the recitals of the
621 Reference, is untenable. According to the learned counsel, under
622 Article 143(1), the President can seek an opinion on any question of
623 law or fact that has arisen, or is likely to arise, which is of such a
624 nature and such public importance that it is expedient to seek the
625 opinion of this Court. There is no additional condition that there
626 should be any ‘doubt’ in the mind of the President. It was submitted
627 by the learned counsel that the need for a Presidential reference may
628 also arise to impart certainty to certain questions of law or fact
629 which are of such a nature and of such moment as to warrant seeking
630 opinion of this Court. It was urged that a pedantic interpretation,
631 by which a Presidential reference would be declined on semantic
632 considerations, such as the failure to use the word ‘doubt’ in the
633 reference, should be eschewed.
634
635 16. Learned counsel contended that at the stage of making a reference, it
636 is the satisfaction of the President in relation to the nature of the
637 question and its importance that is relevant. As a matter of comity of
638 institutions, this Court has always declined to go behind the reasons
639 that prevailed upon the President to make a reference and its bona
640 fides. Nevertheless, this Court always has the discretion not to
641 answer any such reference or the questions raised therein for good
642 reasons. It was stressed that since this Court does not sit in review
643 over the satisfaction of the President, the question of jurisdiction
644 and of maintainability does not arise.
645
646 17. Learned counsel also argued that the premise that earlier judgments of
647 this Court are binding in reference jurisdiction, and thus any
648 reference, which impinges upon an earlier judgment should be returned
649 unanswered, is equally fallacious. It was argued that the principle
650 of stare decisis and the doctrine of precedent are generally accepted
651 and followed as rules of judicial discipline and not jurisdictional
652 fetters and, therefore, this Court is not prevented from re-examining
653 the correctness of an earlier decision. On the contrary, the
654 precedents support the proposition that this Court can, when
655 exercising its jurisdiction under Article 143(1), examine the
656 correctness of past precedents. According to the learned counsel, in
657 Keshav Singh, this Court did examine the correctness of the judgment
658 in Pandit M.S.M. Sharma Vs. Shri Sri Krishna Sinha & Ors.[12]
659 (hereinafter referred to as “Sharmaâ€). Explaining the ratio of the
660 decision in Cauvery-II, learned counsel submitted that it is clear
661 beyond any pale of doubt that the said pronouncement does not lay
662 down, as an abstract proposition of law, that under Article 143(1),
663 this Court cannot consider the correctness of any precedent. What it
664 lays down is that once a lis between the parties is decided, the
665 operative decree can only be opened by way of a review. According to
666 the learned counsel, overruling a judgment — as a precedent — does not
667 tantamount to reopening the decree.
668
669 18. Arguing on similar lines, Mr. C.A. Sundaram, learned senior counsel
670 appearing on behalf of FICCI, contended that if the observations in
671 the 2G Case are read as applying to all natural resources and not
672 limited to spectrum, it would tantamount to de facto policy
673 formulation by the Court, which is beyond the scope of judicial
674 review. He also took a nuanced stance on this Court’s power of
675 reconsideration over its precedents. It was submitted that a
676 precedent can be sliced into two parts viz. the decision or operative
677 part of an order or decree pertaining to the inter partes dispute and
678 the ratio with respect to the position of law; the former being beyond
679 this Court’s powers of review once an earlier bench of this Court has
680 pronounced an authoritative opinion on it, but not the latter. He
681 thus, urged that this Court does have the power to reconsider the
682 principles of law laid down in its previous pronouncements even under
683 Article 141.
684
685 19. Mr. Darius Khambata, learned Advocate General of Maharashtra,
686 submitted that observations in the 2G Case were made only with regard
687 to spectrum thus, leaving it open to this Court to examine the issue
688 with regard to alienation of other natural resources. It was urged
689 that even if broader observations were made with respect to all
690 natural resources, it would still be open to this Court under Article
691 143(1) to say otherwise. He also pointed to certain State
692 legislations that prescribe methods other than auction and thus, urged
693 this Court to answer the first question in the negative lest all those
694 legislations be deemed unconstitutional.
695
696 20. Mr. Sunil Gupta, learned senior counsel, appearing on behalf of the
697 State of U.P., added that when Article 143(1) of the Constitution
698 unfolds a high prerogative of a constitutional authority, namely, the
699 President, to consult this Court on question of law or fact, it
700 contains a no less high prerogative of this Court to report to the
701 President its opinion on the question referred, either by making or
702 declining to give an answer to the question. In other words,
703 according to the learned counsel, the issue of a reference being
704 maintainable at the instance of the President is an issue different
705 from the judicial power of this Court to answer or not to answer the
706 question posed in the reference.
707
708 21. Mr. Ravindra Shrivastava, learned senior counsel appearing on behalf
709 of the State of Chhattisgarh, contended that neither history supports
710 nor reality warrants auction to be a rule of disposal of all natural
711 resources in all situations. He referred to decisions of this Court
712 that unambiguously strike a just balance between considerations of
713 power of the State and duty towards public good, by leaving the choice
714 of method of allocation of natural resources to the State, as long as
715 it conforms to the requirements of Article 14. It was pleaded that
716 the State be allowed the choice of methodology of allocation,
717 especially in cases where it intends to incentivize investments and
718 job creation in backward regions that would otherwise have been left
719 untouched by private players if resources were given at market prices.
720
721 22. To sum up, the objections relating to the maintainability of the
722 Reference converge mainly on the following points: (i) the
723 foundational requirement for reference under Article 143(1) viz. a
724 genuine ‘doubt’ about questions of fact or law that the executive
725 labours under, is absent; (ii) the filing and withdrawal of a review
726 petition whose recitals pertain to the 2G Case would be an impediment
727 in the exercise of discretion under Article 143(1); (iii) the language
728 in which the Reference is couched exhibits mala fides on the part of
729 the Executive; (iv) in light of enunciation of law on the point in
730 Cauvery II, entertaining a Presidential reference on a subject matter,
731 which has been decided upon directly and with finality, is barred; (v)
732 the present Reference is an attempt to overturn the judgment of this
733 Court in the 2G Case, which is against the spirit of Article 143(1)
734 of the Constitution and (vi) the Executive is adopting the route of
735 this Reference to wriggle out of the directions in the 2G Case as the
736 same are inconvenient for them to follow.
737
738DISCUSSION:
739 23. Before we evaluate the rival stands on the maintainability of the
740 Reference, it would be necessary to examine the scope and breadth of
741 Article 143 of the Constitution, which reads thus:
742 “143. Power of President to consult Supreme Court.—(1) If at any time
743 it appears to the President that a question of law or fact has arisen,
744 or is likely to arise, which is of such a nature and of such public
745 importance that it is expedient to obtain the opinion of the Supreme
746 Court upon it, he may refer the question to that Court for
747 consideration and the Court may, after such hearing as it thinks fit,
748 report to the President its opinion thereon.
749
750 (2) The President may, notwithstanding anything in the proviso to
751 article 131, refer a dispute of the kind mentioned in the said proviso
752 to the Supreme Court for opinion and the Supreme Court shall, after
753 such hearing as it thinks fit, report to the President its opinion
754 thereon.â€
755
756
757
758
759A bare reading at the Article would show that it is couched in broad terms.
760 It is plain from the language of Article 143(1) that it is not necessary
761that the question on which the opinion of the Supreme Court is sought must
762have actually arisen. The President can make a reference under the said
763Article even at an anterior stage, namely, at the stage when the President
764is satisfied that the question is likely to arise. The satisfaction
765whether the question meets the pre-requisites of Article 143(1) is
766essentially a matter for the President to decide. Upon receipt of a
767reference under Article 143(1), the function of this Court is to consider
768the reference; the question(s) on which the President has made the
769reference, on the facts as stated in the reference and report to the
770President its opinion thereon.
771
772 24. Nevertheless, the usage of the word “may†in the latter part of
773 Article 143(1) implies that this Court is not bound to render advisory
774 opinion in every reference and may refuse to express its opinion for
775 strong, compelling and good reasons. In Keshav Singh, highlighting the
776 difference in the phraseology used in clauses (1) and (2) of Article
777 143, P.B. Gajendragadkar, C.J., speaking for the majority, held as
778 follows:
779 “…whereas in the case of reference made under Article 143 (2) it is
780 the constitutional obligation of this Court to make a report on that
781 reference embodying its advisory opinion, in a reference made under
782 Article 143 (1) there is no such obligation. In dealing with this
783 latter class of reference, it is open to this Court to consider
784 whether it should make a report to the President giving its advisory
785 opinion on the questions under reference.â€
786
787
788
789
790
791 25. Further, even in an earlier judgment in In re: Allocation of Lands and
792 Buildings Situate in a Chief Commissioner’s Province and in the matter
793 of Reference by the Governor-General under S. 213, Government of India
794 Act, 1935[13], the Federal Court had said that even though the Court
795 is within its authority to refuse to answer a question on a reference,
796 it must be unwilling to exercise its power of refusal “except for good
797 reasons.†A similar phrase was used in In Re: The Kerala Education
798 Bill, 1957 (supra) when this Court observed that opinion on a
799 reference under Article 143(1), may be declined in a “proper case†and
800 “for good reasonsâ€. In Dr. M. Ismail Faruqui & Ors. (supra), it was
801 added that a reference may not be answered when the Court is not
802 competent to decide the question which is based on expert evidence or
803 is a political one.
804
805
806
807
808 26. Having noted the relevant contours of Article 143(1) of the
809 Constitution, we may now deal with the objections to the
810 maintainability of the Reference.
811
812
813
814
815
816 27. There is no denying the fact that in the entire Reference the word
817 ‘doubt’ has not been used. It is also true that in all previous
818 references, noted in para 5 (supra), it had been specifically
819 mentioned that doubts had arisen about various issues. Nonetheless,
820 the fact remains that Article 143(1) does not use the term ‘doubt’.
821 No specific format has been provided in any of the Schedules of the
822 Constitution as to how a reference is to be drawn. The use of the
823 word ‘doubt’ in a reference is also not a constitutional command or
824 mandate. Needless to emphasise that the expression, ‘doubt’, which
825 refers to a state of uncertainty, may be with regard to a fact or a
826 principle. In P. Ramanatha Aiyar’s, The Major Law Lexicon, 4th
827 Edition, the words ‘doubt’ and ‘question’ have been dealt with in the
828 following manner:-
829
830
831 “Doubt, Question. These terms express the act of the mind in staying
832 its decision. Doubt lies altogether in the mind; it is a less active
833 feeling than question; by the former we merely suspend decision; by
834 the latter we actually demand proofs in order to assist us in
835 deciding. We may doubt in silence. We cannot question without
836 expressing it directly or indirectly. He who suggests doubts does it
837 with caution: he who makes a question throws in difficulties with a
838 degree of confidence. We doubt the truth of a position; we question
839 the veracity of an author. (Crabb.)â€
840
841
842As per the Concise Oxford Dictionary (Tenth Edition), ‘question’ means : “a
843doubt; the raising of a doubt or objection; a problem requiring solutionâ€.
844
845In Black’s Law Dictionary ‘doubt’, as a verb, has been defined as follows:
846 “To question or hold questionable.â€
847
848
849The word ‘doubt’, as a noun, has been described as under:-
850
851 “Uncertainty of mind; the absence of a settled opinion or conviction;
852 the attitude of mind towards the acceptance of or belief in a
853 proposition, theory, or statement, in which the judgment is not at
854 rest but inclines alternately to either side.â€
855
856 28. The afore-extracted recitals of the instant Reference state that in
857 the current circumstances, certain questions of law with far reaching
858 national and international implications have arisen, including in
859 relation to conduct of the auction and the regulation of the
860 telecommunications industry in accordance with the judgment (2G Case)
861 that may affect the flow of FDI in the telecom industry and otherwise
862 in other sectors into this country. Thereafter, it is also stated
863 that questions of law that have arisen are of great public importance
864 and are of far reaching consequences for the development of the
865 country and hence, it is thought expedient to obtain the opinion of
866 this Court. Question No.1 of the reference reads as follows:-
867
868 “Whether the only permissible method for disposal of all natural
869 resources across all sectors and in all circumstances is by the
870 conduct of auctions?â€
871
872
873
874
875 29. At this juncture, reference may profitably be made to the decision in
876 In Re: The Special Courts Bill, 1978 (supra), an opinion by a Bench of
877 seven learned Judges, wherein it was observed as follows:
878
879 “27. We were, at one stage of the arguments, so much exercised over
880 the undefined breadth of the reference that we were considering
881 seriously whether in the circumstances it was not advisable to return
882 the reference unanswered. But the written briefs filed by the parties
883 and the oral arguments advanced before us have, by their fullness and
884 ability, helped to narrow down the legal controversies surrounding the
885 Bill and to crystallize the issues which arise for our consideration.
886 We propose to limit our opinion to the points specifically raised
887 before us. It will be convenient to indicate at this stage what those
888 points are.â€
889
890
891
892
893
894
895
896While expressing the hope that, in future, specific questions would be
897framed for the opinion of this Court, Y.V. Chandrachud (as his Lordship
898then was), speaking for the majority, said:
899
900 “30. We hope that in future, whenever a reference is made to this
901 Court under Article 143 of the Constitution, care will be taken to
902 frame specific questions for the opinion of the Court. Fortunately,
903 it has been possible in the instant reference to consider specific
904 questions as being comprehended within the terms of the reference but
905 the risk that a vague and general reference may be returned unanswered
906 is real and ought to engage the attention of those whose duty it is to
907 frame the reference. Were the Bill not as short as it is, it would
908 have been difficult to infuse into the reference the comprehension of
909 the two points mentioned by us above and which we propose to decide.
910 A long Bill would have presented to us a rambling task in the absence
911 of reference on specific points, rendering it impossible to formulate
912 succinctly the nature of constitutional challenge to the provisions of
913 the Bill.â€
914
915
916
917
918 30. From the afore-extracted paragraphs, three broad principles emerge:
919 (i) a reference should not be vague, general and undefined, (ii) this
920 Court can go through the written briefs and arguments to narrow down
921 the legal controversies, and (iii) when the question becomes
922 unspecific and incomprehensible, the risk of returning the reference
923 unanswered arises. In Keshav Singh, this Court while dealing with the
924 validity of the reference, referred to earlier decisions and opined as
925 follows:
926
927
928 “…It would thus be seen that the questions so far referred by the
929 President for the Advisory opinion of this Court under Article 143(1)
930 do not disclose a uniform pattern and that is quite clearly consistent
931 with the broad and wide words used in Article 143(1).â€
932
933
934
935 31. An analysis of the afore-noted cases, indicates that neither has a
936 particular format been prescribed nor any specific pattern been
937 followed in framing references. The first principle relates to the
938 ‘form’ and the second pertains to the ‘pattern of content’.
939 Holistically understood, on the ground of form or pattern alone, a
940 reference is not to be returned unanswered. It requires appropriate
941 analysis, understanding and appreciation of the content or the issue
942 on which doubt is expressed, keeping in view the concept of
943 constitutional responsibility, juridical propriety and judicial
944 discretion.
945
946
947
948 32. Thus, we find it difficult to accept the stand that use of the word
949 ‘doubt’ is a necessary condition for a reference to be maintainable
950 under Article 143(1). That apart, in our view, question No.1, quoted
951 above, is neither vague nor general or unspecific, but is in the realm
952 of comprehension which is relatable to a question of law. It
953 expresses a ‘doubt’ and seeks the opinion of the Court on that
954 question, besides others.
955
956
957
958
959 33. In so far as the impact of filing and withdrawal of the review
960 application by the Union of India, against the decision in the 2G Case
961 on the maintainability of the instant Reference is concerned, it is a
962 matter of record that in the review petition, certain aspects of the
963 grounds for review which have been stated in the recitals of the
964 Reference as well as in some questions, were highlighted. However,
965 there is a gulf of difference between the jurisdiction exercised by
966 this Court in a review and the discretion exercised in answering a
967 reference under Article 143(1) of the Constitution. A review is
968 basically guided by the well-settled principles for review of a
969 judgment and a decree or order passed inter se parties. The Court in
970 exercise of power of review may entertain the review under the
971 acceptable and settled parameters. But, when an opinion of this Court
972 is sought by the Executive taking recourse to a constitutional power,
973 needless to say, the same stands on a different footing altogether. A
974 review is lis specific and the rights of the parties to the
975 controversy are dealt with therein, whereas a reference is answered
976 keeping in view the terms of the reference and scrutinising whether
977 the same satisfies the requirements inherent in the language employed
978 under Article 143(1) of the Constitution. In our view, therefore,
979 merely because a review had been filed and withdrawn and in the
980 recital the narration pertains to the said case, the same would not be
981 an embargo or impediment for exercise of discretion to answer the
982 Reference.
983
984
985
986
987
988 34. As far as the allegation of mala fide is concerned, it is trite that
989 this Court is neither required to go into the truth or otherwise of
990 the facts of the recitals nor can it go into the question of bona
991 fides or otherwise of the authority making a reference. [See: In Re:
992 Presidential Poll (supra)]. To put it differently, the constitutional
993 power to seek opinion of this Court rests with the President. The
994 only discretion this Court has is either to answer the reference or
995 respectfully decline to send a report to the President. Therefore,
996 the challenge on the ground of mala fide, as raised, is unsustainable.
997
998
999
1000 35. The principal objection to the maintainability of the Reference is
1001 that it is an indirect endeavour to unsettle and overturn the verdict
1002 in the 2G Case, which is absolutely impermissible. The stand of the
1003 objectors is that the 2G Case is an authoritative precedent in respect
1004 of the principle or proposition of law that all natural resources are
1005 to be disposed of by way of public auction and, therefore, the
1006 Reference should be held as not maintainable. Emphasis in this behalf
1007 was on paragraphs 85 and 94 to 96 of the said judgment. In support of
1008 the proposition, heavy reliance was placed on Cauvery II.
1009
1010
1011
1012
1013 36. At the outset, we may note that the learned Attorney General has more
1014 than once stated that the Government of India is not questioning the
1015 correctness of the directions in the 2G Case, in so far as the
1016 allocation of spectrum is concerned, and in fact the Government is in
1017 the process of implementing the same, in letter and spirit. Therefore,
1018 in the light of the said statement, we feel that it would be
1019 unnecessary to comment on the submission that the Reference is an
1020 attempt to get an opinion to unsettle the decision and directions of
1021 this Court in the 2G Case. Nevertheless, since in support of the
1022 aforesaid submission, the opinion of this Court in Cauvery II has been
1023 referred to and relied upon in extenso, it would be appropriate to
1024 decipher the true ratio of Cauvery II, the lynchpin of the opposition
1025 to maintainability of the present Reference.
1026
1027
1028
1029 37. Cauvery II was preceded by State of Tamil Nadu Vs. State of Karnataka
1030 & Ors.[14] (hereinafter referred to as “Cauvery Iâ€), which dwelled on
1031 the issue whether the Cauvery Water Disputes Tribunal (for short “the
1032 Tribunalâ€) had the power to grant interim relief. In that case,
1033 applications filed by the State of Tamil Nadu for urgent interim
1034 reliefs were rejected by the Tribunal on the ground that they were not
1035 maintainable. This order was challenged, resulting in the judgment
1036 dated 26th April, 1991 by this Court, where it was held as follows:
1037
1038
1039 “15. Thus, we hold that this Court is the ultimate interpreter of the
1040 provisions of the Interstate Water Disputes Act, 1956 and has an
1041 authority to decide the limits, powers and the jurisdiction of the
1042 Tribunal constituted under the Act. This Court has not only the power
1043 but obligation to decide as to whether the Tribunal has any
1044 jurisdiction or not under the Act, to entertain any interim
1045 application till it finally decides the dispute referred to it…â€
1046
1047
1048
1049
1050
1051 38. The Tribunal had ruled that since it was not like other courts with
1052 inherent powers to grant interim relief, only in case the Central
1053 Government referred a case for interim relief to it, would it have the
1054 jurisdiction to grant the same. Inter-alia, the Court observed that
1055 the Tribunal was wrong in holding that the Central Government had not
1056 made any reference for granting any interim relief, and concluded that
1057 the interim reliefs prayed for clearly fell within the purview of the
1058 dispute referred by the Central Government. Accordingly, the appeals
1059 preferred by the State of Tamil Nadu were allowed and the Tribunal was
1060 directed to decide the applications for interim relief. However, the
1061 Court did not decide the larger question of whether a Tribunal,
1062 constituted under the Interstate Water Disputes Act, 1956 had the
1063 power to grant an interim relief, though the answer to the same may be
1064 deduced from the final direction.
1065
1066
1067
1068
1069 39. In pursuance of these directions, the Tribunal decided the application
1070 and vide its order dated 25th June, 1991, proceeded to issue certain
1071 directions to the State of Karnataka. Thereafter, on 25th July 1991,
1072 the Governor of Karnataka issued an Ordinance named “The Karnataka
1073 Cauvery Basin Irrigation Protection Ordinance, 1991â€. Hot on the
1074 heels of the Ordinance, the State of Karnataka also instituted a suit
1075 under Article 131 of the Constitution against the State of Tamil Nadu
1076 for a declaration that the Tribunal’s order granting interim relief
1077 was without jurisdiction and, therefore, null and void, etc. The
1078 Ordinance was replaced by Act 27 of 1991. In the context of these
1079 developments, the President made a reference to this Court under
1080 Article 143(1) of the Constitution, posing three questions for
1081 opinion. The third question of the reference, relevant for the
1082 present Reference, was :-
1083
1084
1085 “3. Whether a Water Disputes Tribunal constituted under the Act is
1086 competent to grant any interim relief to the parties to the dispute.â€
1087
1088
1089
1090
1091
1092
1093
1094
1095
1096However, while dealing with the reference in Cauvery II, the Court split
1097the question, viz., whether a Water Disputes Tribunal constituted under the
1098Act is competent to grant any interim relief into two parts: (i) when a
1099reference for grant of interim relief is made to the Tribunal, and (ii)
1100when no such reference is made to it. It was contended by the States of
1101Karnataka and Kerala that if the Tribunal did not have power to grant
1102interim relief, the Central Government would be incompetent to make a
1103reference for the purpose in the first place and the Tribunal in turn would
1104have no jurisdiction to entertain such reference, if made. Dealing with the
1105said submission, after making a reference to the earlier order, this Court
1106observed that once the Central Government had made a reference to the
1107Tribunal for consideration of the claim for interim relief, prayed for by
1108the State of Tamil Nadu, the Tribunal had jurisdiction to consider the said
1109request being a part of the reference itself. Implicit in the said decision
1110was the finding that the subject of interim relief was a matter connected
1111with or relevant to the water dispute within the meaning of Section 5(1) of
1112the said Act. It was held that the Central Government could refer the
1113matter for granting interim relief to the Tribunal for adjudication.
1114
1115
1116
1117
1118 40. The consequence of the Court in coming to the conclusion, while
1119 replying to the third question was that the Tribunal did not have the
1120 jurisdiction to make an interim award or grant interim relief, would
1121 have not only resulted in the Court overruling its earlier decision
1122 between the two contending parties i.e. the two States, but it would
1123 have also then required the Court to declare the order of the Tribunal
1124 as being without jurisdiction. The Court therefore, said :
1125 “83…Although this Court by the said decision has kept open the
1126 question, viz., whether the Tribunal has incidental, ancillary,
1127 inherent or implied power to grant the interim relief when no
1128 reference for grant of such relief is made to it, it has in terms
1129 concluded the second part of the question. We cannot, therefore,
1130 countenance a situation whereby question 3 and for that matter
1131 questions 1 and 2 may be so construed as to invite our opinion on the
1132 said decision of this Court. That would obviously be tantamount to our
1133 sitting in appeal on the said decision which it is impermissible for
1134 us to do even in adjudicatory jurisdiction. Nor is it competent for
1135 the President to invest us with an appellate jurisdiction over the
1136 said decision through a Reference under Article 143 of the
1137 Constitution.â€
1138
1139These observations would suggest that the Court declined to construe
1140Article 143 as a power any different from its adjudicative powers and for
1141that reason, said that what could not be done in the adjudicatory process
1142would equally not be achieved through the process of a reference.
1143
1144 41. The expression, “sitting in appeal†was accurately used. An appellate
1145 court vacates the decree (or writ, order or direction) of the lower
1146 court when it allows an appeal - which is what this Court was invited
1147 to do in Cauvery I. This Court, in that appeal decided earlier, held
1148 that the Tribunal had the jurisdiction to pass the interim order
1149 sought by the State of Tamil Nadu. To nullify the interim order
1150 passed by the Tribunal, pursuant to a direction of the Supreme Court,
1151 on the ground that it was without jurisdiction, would necessarily
1152 require vacating the direction of the Supreme Court to the Tribunal to
1153 exercise its jurisdiction and decide the interim matter. Para 85 of
1154 that decision puts the matter beyond any pale of doubt:
1155
1156
1157 “85... In the first instance, the language of clause (1) of Article
1158 143 far from supporting Shri Nariman's contention is opposed to it.
1159 The said clause empowers the President to refer for this Court's
1160 opinion a question of law or fact which has arisen or is likely to
1161 arise. When this Court in its adjudicatory jurisdiction pronounces
1162 its authoritative opinion on a question of law, it cannot be said
1163 that there is any doubt about the question of law or the same is res
1164 integra so as to require the President to know what the true
1165 position of law on the question is. The decision of this Court on a
1166 question of law is binding on all courts and authorities. Hence
1167 under the said clause the President can refer a question of law only
1168 when this Court has not decided it. Secondly, a decision given by
1169 this Court can be reviewed only under Article 137 read with Rule 1
1170 of Order 40 of the Supreme Court Rules, 1966 and on the conditions
1171 mentioned therein. When, further, this Court overrules the view of
1172 law expressed by it in an earlier case, it does not do so sitting in
1173 appeal and exercising an appellate jurisdiction over the earlier
1174 decision. It does so in exercise of its inherent power and only in
1175 exceptional circumstances such as when the earlier decision is per
1176 incuriam or is delivered in the absence of relevant or material
1177 facts or if it is manifestly wrong and productive of public
1178 mischief. [See: Bengal Immunity Company Ltd. v. State of Bihar
1179 (1955) 2 SCR 603]. Under the Constitution such appellate
1180 jurisdiction does not vest in this Court, nor can it be vested in it
1181 by the President under Article 143. To accept Shri Nariman's
1182 contention would mean that the advisory jurisdiction under Article
1183 143 is also an appellate jurisdiction of this Court over its own
1184 decision between the same parties and the executive has a power to
1185 ask this Court to revise its decision. If such power is read in
1186 Article 143 it would be a serious inroad into the independence of
1187 judiciary.â€
1188
1189
1190
1191 42. Eventually, the reference was answered in respect of question No.3 in
1192 the following terms:-
1193
1194
1195 “Question No.3: (i) A Water Disputes Tribunal constituted under
1196 the Act is competent to grant any interim relief to the parties to the
1197 dispute when a reference for such relief is made by the Central
1198 Government;
1199
1200
1201
1202
1203
1204
1205 (ii) whether the Tribunal has power to grant interim relief
1206 when no reference is made by the Central Government for such relief is
1207 a question which does not arise in the facts and circumstances under
1208 which the Reference is made. Hence we do not deem it necessary to
1209 answer the same.â€
1210
1211
1212
1213
1214 43. The main emphasis of Mr. Soli Sorabjee was on the second part of
1215 paragraph 85, which, according to him, prohibits this Court from
1216 overruling a view expressed by it previously under Article 143(1). We
1217 are not persuaded to agree with the learned senior counsel. The
1218 paragraph has to be read carefully. Sawant J. first considers
1219 the case of a “decision†of this Court whereas in the subsequent
1220 sentence he considers a “view of law†expressed by the Court, and
1221 attempts to explain the difference between the approaches to these two
1222 situations. These words are sometimes used interchangeably but not
1223 hereinabove. We believe that Justice Sawant consciously draws a
1224 difference between the two by using the words “When, further, this
1225 Court overrules the view of law…†after discussing the case of a
1226 “decisionâ€.
1227
1228 44. Black’s Law Dictionary defines a “decision†as “a determination
1229 arrived at after consideration of facts, and, in legal context, lawâ€;
1230 an “opinion†as “the statement by a judge or court of the decision
1231 reached in regard to a cause tried or argued before them, expounding
1232 the law as applied to the case, and detailing the reasons upon which
1233 the judgment is basedâ€; and explains the difference between a
1234 “decision†and “opinion†as follows:
1235
1236 “Decision is not necessarily synonymous with ‘opinion’. A decision of
1237 the Court is its judgment; the opinion is the reasons given for that
1238 judgment, or the expression of the views of the judge.â€
1239
1240
1241
1242
1243
1244 45. Therefore, references in Para 85 to “decision†and “view of law†must
1245 be severed from each other. The learned Judge observes that in case
1246 of a decision, the appellate structure is exhausted after a
1247 pronouncement by the Supreme Court. Therefore, the only option left
1248 to the parties is of review or curative jurisdiction (a remedy carved
1249 out in the judgment in Rupa Ashok Hurra Vs. Ashok Hurra & Anr.[15]).
1250 After the exercise of those limited options, the concerned parties
1251 have absolutely no relief with regard to the dispute; it is considered
1252 settled for eternity in the eyes of the law. However what is not
1253 eternal and still malleable in the eyes of law is the opinion or “view
1254 of law†pronounced in the course of reaching the decision. Justice
1255 Sawant clarifies that unlike this Court’s appellate power, its power
1256 to overrule a previous precedent is an outcome of its inherent power
1257 when he says, “…it does not do so sitting in appeal and exercising an
1258 appellate jurisdiction over the earlier decision. It does so in
1259 exercise of its inherent power and only in exceptional
1260 circumstances….†This Court has pointed out the difference between
1261 the two expressions in Rupa Ashok Hurra (supra), in the following
1262 words:
1263 “24. There is no gainsaying that the Supreme Court is the court of
1264 last resort — the final court on questions both of fact and of law
1265 including constitutional law. The law declared by this Court is the
1266 law of the land; it is precedent for itself and for all the
1267 courts/tribunals and authorities in India. In a judgment there will be
1268 declaration of law and its application to the facts of the case to
1269 render a decision on the dispute between the parties to the lis. It is
1270 necessary to bear in mind that the principles in regard to the highest
1271 court departing from its binding precedent are different from the
1272 grounds on which a final judgment between the parties, can be
1273 reconsidered. Here, we are mainly concerned with the latter. However,
1274 when reconsideration of a judgment of this Court is sought the
1275 finality attached both to the law declared as well as to the decision
1276 made in the case, is normally brought under challenge…â€
1277
1278
1279Therefore, there are two limitations - one jurisdictional and the other
1280self-imposed.
1281
1282
1283
1284
1285
1286 46. The first limitation is that a decision of this Court can be reviewed
1287 only under Article 137 or a Curative Petition and in no other way. It
1288 was in this context that in para 85 of Cauvery II, this Court had
1289 stated that the President can refer a question of law when this Court
1290 has not decided it. Mr. Harish Salve, learned senior counsel, is
1291 right when he argues that once a lis between parties is decided, the
1292 operative decree can only be opened in review. Overruling the judgment
1293 - as a precedent - does not reopen the decree.
1294
1295
1296
1297
1298
1299 47. The second limitation, a self imposed rule of judicial discipline, was
1300 that overruling the opinion of the Court on a legal issue does not
1301 constitute sitting in appeal, but is done only in exceptional
1302 circumstances, such as when the earlier decision is per incuriam or is
1303 delivered in the absence of relevant or material facts or if it is
1304 manifestly wrong and capable of causing public mischief. For this
1305 proposition, the Court relied upon the judgment in the Bengal Immunity
1306 case (supra) wherein it was held that when Article 141 lays down that
1307 the law declared by this Court shall be binding on all courts within
1308 the territory of India, it quite obviously refers to courts other than
1309 this Court; and that the Court would normally follow past precedents
1310 save and except where it was necessary to reconsider the correctness
1311 of law laid down in that judgment. In fact, the overruling of a
1312 principle of law is not an outcome of appellate jurisdiction but a
1313 consequence of its inherent power. This inherent power can be
1314 exercised as long as a previous decree vis-Ã -vis lis inter partes is
1315 not affected. It is the attempt to overturn the decision of a
1316 previous case that is problematic which is why the Court observes that
1317 “under the Constitution such appellate jurisdiction does not vest in
1318 this Court, nor can it be vested in it by the President under Article
1319 143.â€
1320
1321
1322
1323
1324
1325 48. Therefore, the controversy in Cauvery II was covered by the decision
1326 rendered by this Court in Cauvery I between the parties and the
1327 decision operated as res judicata and hence, it was opined that
1328 discretion under Article 143(1) could not be exercised. It has also
1329 been observed that this Court had analysed the relevant provisions of
1330 the Inter-State Water Disputes Act, 1956 and thereafter had come to
1331 the conclusion that the Tribunal had jurisdiction to grant interim
1332 relief if the question of granting interim relief formed part of the
1333 reference. On this bedrock it was held that the decision operated as
1334 res judicata. It is, therefore, manifest from Cauvery II that the
1335 Court was clearly not opposed to clarifying the ratio of a previous
1336 judgment in Cauvery I, in the course of an advisory jurisdiction.
1337 Afore-extracted para 85 of Cauvery II, restricts this Court’s advisory
1338 jurisdiction on the limited point of overturning a decided issue vis-Ã -
1339 vis a ‘dispute’ or lis inter partes.
1340
1341
1342
1343
1344
1345 49. Finally a seven Judge Bench of this Court has clearly held that this
1346 Court, under Article 143(1), does have the power to overrule a
1347 previous view delivered by it. Justice Chandrachud, C.J. in In re:
1348 The Special Courts Bill (supra) held:
1349
1350 “101…We are inclined to the view that though it is always open to this
1351 Court to re-examine the question already decided by it and to
1352 overrule, if necessary, the view earlier taken by it, insofar as all
1353 other courts in the territory of India are concerned they ought to be
1354 bound by the view expressed by this Court even in the exercise of its
1355 advisory jurisdiction under Article 143(1) of the Constitution.â€
1356
1357
1358
1359 50. There is a catena of pronouncements in which this Court has either
1360 explained, clarified or read down the ratio of previous judgments. In
1361 the very first reference, In Re: Delhi Laws Act, 1912 (supra), the
1362 reference was made by reason of a judgment of the Federal Court in
1363 Jatindra Nath Gupta Vs. The Province of Bihar & Ors.[16]. The
1364 background of that reference was explained by Mukherjea, J. as under:
1365 “The necessity of seeking the advisory opinion of this Court is stated
1366 to have arisen from the fact that because of the decision of the
1367 Federal Court in Jatindra Nath Gupta v. The Province of Bihar, which
1368 held the proviso to sub-section (3) of Section 1 of the Bihar
1369 Maintenance of Public Order Act, 1947, ultra vires the Bihar
1370 Provincial Legislature, by reason of its amounting to a delegation of
1371 its legislative powers to an extraneous authority, doubts have arisen
1372 regarding the validity of the three legislative provisions mentioned
1373 above, the legality of the first and the second being actually called
1374 in question in certain judicial proceedings which are pending before
1375 some of the High Courts in India.â€
1376
1377
1378
1379
1380Justice Das in the same opinion, while noting that reliance was placed by
1381learned counsel for the interveners on the judgment of the Federal Court in
1382Jatindra Nath Gupta (supra), recorded that the learned Attorney General had
1383strenuously challenged the correctness of the decision of the majority of
1384the Federal Court in that case. Inter-alia, observing that the reference
1385was in a way occasioned by that decision, the learned Judge held as
1386follows:
1387
1388 “I feel bound to say, with the utmost humility and for reasons given
1389 already, that the observations of the majority of the Federal Court in
1390 that case went too far and, in agreement with the learned Attorney-
1391 General, I am unable to accept them as correct exposition of the
1392 principles relating to the delegation of legislative power.â€
1393
1394
1395
1396
1397 51. In this context, it would be beneficial to refer to Keshav Singh’s
1398 case. In the said case, a reference was made by the President which
1399 fundamentally pertained to the privileges of the Legislative Assembly
1400 and exercise of jurisdiction by a Bench of the High Court. The High
1401 Court entertained a writ petition under Article 226 of the
1402 Constitution, challenging the decision of the Assembly committing one
1403 Keshav Singh, who was not one of its members, to prison for its
1404 contempt. The issue was whether by entertaining the writ petition,
1405 the Judges of the High Court were in contempt of the Legislature for
1406 infringement of its privileges and immunities. For the same, this
1407 Court proceeded to construe the relevant provisions contained in
1408 Article 194(3) and its harmonization with other Articles of the
1409 Constitution, especially Articles 19(1)(a), 21 & 22. In that context,
1410 the decision in “Sharma†(supra) came up for consideration. One of the
1411 questions that arose in Sharma’s case was the impact of Articles
1412 19(1)(a) and 21 on the provisions contained in the latter part of
1413 Article 194(3). The majority view was that the privilege in question
1414 was subsisting at the relevant time and must, therefore, deemed to be
1415 included under the latter part of Article 194(3). It was held that
1416 Article 19(1)(a) did not apply under the rule of harmonious
1417 construction, where Article 19(1)(a) was in direct conflict with
1418 Article 194(3). The particular provision in the latter Article would
1419 prevail over the general provision contained in the former. It was
1420 further held that though Article 21 applied, it had not been
1421 contravened. The minority view, on the other hand, held that the
1422 privilege in question had not been established; even assuming the same
1423 was established and it was to be included in the latter part of
1424 Article 194(3), yet it must be controlled by Article 19(1)(a) on the
1425 ground that Fundamental Rights guaranteed by Part III of the
1426 Constitution were of paramount importance and must prevail over a
1427 provision like the one contained in Article 194(3) which may be
1428 inconsistent with them. The majority decision also commented on the
1429 decision in Gunupati Keshavram Reddy Vs. Nafisul Hasan & the State of
1430 U.P.[17] and observed that the said decision was based entirely on a
1431 concession and could not, therefore, be deemed to be a considered
1432 decision of this Court.
1433
1434
1435
1436
1437
1438 52. The decision in Keshavram Reddy (supra) dealt with the applicability
1439 of Article 22(2) to a case falling under the latter part of Article
1440 194(3). It is worth noting that the minority opinion of Sharma
1441 treated Keshavram Reddy, as expressing a considered opinion, which was
1442 binding on the Court. In Keshav Singh it was opined that in Sharma’s
1443 case, the majority decision held in terms that Article 21 was
1444 applicable to the contents of Article 194(3), but on merits, it came
1445 to the conclusion that the alleged contravention had not been proved.
1446 Commenting on the minority view it was opined that it was unnecessary
1447 to consider whether Article 21 as such applied because the said view
1448 treated all the Fundamental Rights guaranteed by Part III as
1449 paramount, and therefore, each one of them could control the
1450 provisions of Article 194(3).
1451
1452
1453
1454
1455
1456 53. At that juncture, the Bench stated that in the case of Sharma,
1457 contentions urged by the petitioner did not raise a general issue as
1458 to the relevance and applicability of all the fundamental rights
1459 guaranteed by Part III at all. The contravention of only two Articles
1460 was pleaded and they were Articles 19(1)(a) and 21. Strictly
1461 speaking, it was, therefore, unnecessary to consider the larger issue
1462 as to whether the latter part of Article 194(3) was subject to the
1463 fundamental rights in general, and indeed, even on the majority view
1464 it could not be said that the said view excluded the application of
1465 all fundamental rights, for the obvious and simple reason that Article
1466 21 was held to be applicable and the merits of the petitioner’s
1467 arguments about its alleged contravention in his case were examined
1468 and rejected. Therefore, it was not right to read the majority
1469 decision as laying down a general proposition that whenever there is a
1470 conflict between the provisions of the latter part of Article 194(3)
1471 and any of the provisions of the fundamental rights guaranteed by Part
1472 III, the latter must always yield to the former. It was further
1473 observed that the majority decision had incidentally commented on the
1474 decision in Keshavram Reddy’s case (supra). Apart from that there was
1475 no controversy about the applicability of Article 22 in that case,
1476 and, therefore, the comment made by the majority judgment on the
1477 earlier decision was partly not accurate. Their Lordships adverted to
1478 the facts in Sharma’s case wherein the majority judgment had observed
1479 that it “proceeded entirely on a concession of counsel and cannot be
1480 regarded as a considered opinion on the subject.†After so stating,
1481 the Bench opined thus:
1482
1483
1484 “…There is no doubt that the first part of this comment is not
1485 accurate. A concession was made by the Attorney-General not on a point
1486 of law which was decided by the Court, but on a point of fact; and
1487 so, this part of the comment cannot strictly be said to be justified.
1488 It is, however, true that there is no discussion about the merits of
1489 the contention raised on behalf of Mr. Mistry and to that extent, it
1490 may have been permissible to the majority judgment to say that it was
1491 not a considered opinion of the Court. But, as we have already pointed
1492 out, it was hardly necessary for the majority decision to deal with
1493 the point pertaining to the applicability of Article 22(2), because
1494 that point did not arise in the proceedings before the Court in Pandit
1495 Sharma’s case. That is why we wish to make it clear that the obiter
1496 observations made in the majority judgment about the validity or
1497 correctness of the earlier decision of this Court in Gunupati
1498 Keshavram Reddy’s case should not be taken as having decided the point
1499 in question. In other words, the question as to whether Article 22(2)
1500 would apply to such a case may have to be considered by this Court if
1501 and when it becomes necessary to do so.â€
1502
1503
1504
1505
1506
1507
1508
1509
1510
1511
1512 54. From the aforesaid decision it is clear that while exercising
1513 jurisdiction under Article 143(1) of the Constitution this Court can
1514 look into an earlier decision for the purpose of whether the
1515 contentions urged in the previous decision did raise a general issue
1516 or not; whether it was necessary to consider the larger issue that did
1517 not arise; and whether a general proposition had been laid down. It
1518 has also been stated that where no controversy arose with regard to
1519 applicability of a particular facet of constitutional law, the
1520 comments made in a decision could be treated as not accurate; and
1521 further it could be opined that in an earlier judgment there are
1522 certain obiter observations.
1523
1524
1525
1526
1527
1528 55. Thus, in Keshav Singh, a seven-Judge Bench, while entertaining a
1529 reference under Article 143(1), dealt with a previous decision in
1530 respect of its interpretation involving a constitutional principle in
1531 respect of certain Articles, and proceeded to opine that the view
1532 expressed in Sharma’s case, in relation to a proposition laid down in
1533 Keshavram Reddy’s case, was inaccurate.
1534
1535
1536
1537
1538
1539 56. At this stage, it is worthy to refer to Supreme Court Advocates-on-
1540 Record Association and Ors. Vs. Union of India[18]. J.S. Verma, J.,
1541 (as his Lordship then was) speaking for the majority, apart from other
1542 conclusions relating to appointment of Judges and the Chief Justices,
1543 while dealing with transfer, expressed thus:
1544
1545
1546 “(8) Consent of the transferred Judge/Chief Justice is not
1547 required for either the first or any subsequent transfer from one High
1548 Court to another.
1549
1550
1551
1552
1553
1554
1555 (9) Any transfer made on the recommendation of the Chief Justice of
1556 India is not to be deemed to be punitive, and such transfer is not
1557 justiciable on any ground.
1558
1559
1560 (10) In making all appointments and transfers, the norms
1561 indicated must be followed. However, the same do not confer any
1562 justiciable right in anyone.
1563
1564
1565 (11) Only limited judicial review on the grounds specified
1566 earlier is available in matters of appointments and transfers.â€
1567
1568
1569
1570
1571
1572As far as the ground of limited judicial review is concerned the majority
1573opined thus:
1574 “481. These guidelines in the form of norms are not to be construed as
1575 conferring any justiciable right in the transferred Judge. Apart from
1576 the constitutional requirement of a transfer being made only on the
1577 recommendation of the Chief Justice of India, the issue of transfer is
1578 not justiciable on any other ground, including the reasons for the
1579 transfer or their sufficiency. The opinion of the Chief Justice of
1580 India formed in the manner indicated is sufficient safeguard and
1581 protection against any arbitrariness or bias, as well as any erosion
1582 of the independence of the judiciary.
1583
1584
1585 482. …Except on the ground of want of consultation with the named
1586 constitutional functionaries or lack of any condition of eligibility
1587 in the case of an appointment, or of a transfer being made without the
1588 recommendation of the Chief Justice of India, these matters are not
1589 justiciable on any other ground, including that of bias, which in any
1590 case is excluded by the element of plurality in the process of
1591 decision-making.â€
1592
1593
1594
1595 57. In Special Reference No. 1 of 1998, (commonly referred as the “Second
1596 Judges Caseâ€), question No. 2 reads as follows:
1597
1598
1599 “(2) Whether the transfer of Judges is judicially reviewable in the
1600 light of the observation of the Supreme Court in the aforesaid
1601 judgment that ‘such transfer is not justiciable on any ground’ and its
1602 further observation that limited judicial review is available in
1603 matters of transfer, and the extent and scope of judicial review.â€
1604
1605
1606While answering the same, the Bench opined thus:
1607
1608 “37. It is to our mind imperative, given the gravity involved in
1609 transferring High Court Judges, that the Chief Justice of India should
1610 obtain the views of the Chief Justice of the High Court from which the
1611 proposed transfer is to be effected as also the Chief Justice of the
1612 High Court to which the transfer is to be effected. This is in accord
1613 with the majority judgment in the Second Judges case which postulates
1614 consultation with the Chief Justice of another High Court. The Chief
1615 Justice of India should also take into account the views of one or
1616 more Supreme Court Judges who are in a position to provide material
1617 which would assist in the process of deciding whether or not a
1618 proposed transfer should take place. These views should be expressed
1619 in writing and should be considered by the Chief Justice of India and
1620 the four seniormost puisne Judges of the Supreme Court. These views
1621 and those of each of the four seniormost puisne Judges should be
1622 conveyed to the Government of India along with the proposal of
1623 transfer. Unless the decision to transfer has been taken in the manner
1624 aforestated, it is not decisive and does not bind the Government of
1625 India.â€
1626
1627
1628
1629
1630
1631 In the conclusion their Lordships clearly state as follows:
1632
1633
1634 “1. The expression “consultation with the Chief Justice of India†in
1635 Articles 217(1) and 222(1) of the Constitution of India requires
1636 consultation with a plurality of Judges in the formation of the
1637 opinion of the Chief Justice of India. The sole individual opinion of
1638 the Chief Justice of India does not constitute “consultation†within
1639 the meaning of the said articles.
1640
1641
1642 2. The transfer of puisne Judges is judicially reviewable only to this
1643 extent: that the recommendation that has been made by the Chief
1644 Justice of India in this behalf has not been made in consultation with
1645 the four seniormost puisne Judges of the Supreme Court and/or that the
1646 views of the Chief Justice of the High Court from which the transfer
1647 is to be effected and of the Chief Justice of the High Court to which
1648 the transfer is to be effected have not been obtained.â€
1649
1650
1651
1652
1653
1654 58. From the aforesaid, it is demonstrable that while entertaining the
1655 reference under Article 143(1), this Court had analysed the principles
1656 enunciated in the earlier judgment and also made certain
1657 modifications. The said modifications may be stated as one of the mode
1658 or method of inclusion by way of modification without changing the
1659 ratio decidendi. For the purpose of validity of a reference, suffice
1660 it to say, dwelling upon an earlier judgment is permissible. That
1661 apart, one cannot be oblivious of the fact that the scope of limited
1662 judicial review, in the Second Judges Case, which otherwise is quite
1663 restricted, was slightly expanded in the Court’s opinion to the
1664 Presidential reference.
1665
1666
1667 59. It is of some interest to note that almost every reference, filed
1668 under Article 143(1), has witnessed challenge as to its
1669 maintainability on one ground or the other, but all the same, the
1670 references have been answered, except in Dr. M. Ismail Faruqui & Ors.
1671 (supra), which was returned unanswered, mainly on the ground that the
1672 reference did not serve a constitutional purpose.
1673
1674
1675 60. From the aforesaid analysis, it is quite vivid that this Court would
1676 respectfully decline to answer a reference if it is improper,
1677 inadvisable and undesirable; or the questions formulated have purely
1678 socio-economic or political reasons, which have no relation whatsoever
1679 with any of the provisions of the Constitution or otherwise are of no
1680 constitutional significance; or are incapable of being answered; or
1681 would not subserve any purpose; or there is authoritative
1682 pronouncement of this Court which has already decided the question
1683 referred.
1684
1685
1686
1687
1688
1689 61. In the case at hand, it is to be scrutinized whether the 2G Case is a
1690 decision which has dealt with and decided the controversy encapsulated
1691 in question No. 1 or meets any of the criteria mentioned above. As we
1692 perceive, the question involves interpretation of a constitutional
1693 principle inherent under Article 14 of the Constitution and it is of
1694 great public importance as it deals with
1695 allocation/alienation/disposal/ distribution of natural resources.
1696 Besides, the question whether the 2G Case is on authoritative
1697 pronouncement in that regard, has to be looked into and only then an
1698 opinion can be expressed. For the said purpose all other impediments
1699 do not remotely come into play in the present Reference.
1700
1701
1702 62. We are, therefore, of the view that as long as the decision with
1703 respect to the allocation of spectrum licenses is untouched, this
1704 Court is within its jurisdiction to evaluate and clarify the ratio of
1705 the judgment in the 2G Case. For the purpose of this stage of
1706 argumentation, it needs little emphasis, that we have the jurisdiction
1707 to clarify the ratio of the judgment in 2G Case, irrespective of
1708 whether we actually choose to do so or not. Therefore, the fact that
1709 this Reference may require us to say something different to what has
1710 been enunciated in the 2G Case as a proposition of law, cannot strike
1711 at the root of the maintainability of the Reference. Consequently, we
1712 reject the preliminary objection and hold that this Reference is
1713 maintainable, notwithstanding its effect on the ratio of the 2G Case,
1714 as long as the decision in that case qua lis inter partes is left
1715 unaffected.
1716
1717
1718ON MERITS:
1719
1720 63. This leads us to the merits of the controversy disclosed in the
1721 questions framed in the Reference for our advisory opinion.
1722
1723
1724
1725
1726 64. As already pointed out, the judgment in the 2G Case triggered doubts
1727 about the validity of methods other than ‘auction’ for disposal of
1728 natural resources which, ultimately led to the filing of the present
1729 Reference. Therefore, before we proceed to answer question No.1, it
1730 is imperative to understand what has been precisely stated in the 2G
1731 Case and decipher the law declared in that case.
1732
1733
1734 65. All the counsel agreed that paragraphs 94 to 96 in the said decision
1735 are the repository of the ratio vis-Ã -vis disposal of natural
1736 resources in the 2G Case. On the one hand it was argued that these
1737 paragraphs lay down, as a proposition of law, that all natural
1738 resources across all sectors, and in all circumstances are to be
1739 disposed of by way of public auction, and on the other, it was urged
1740 that the observations therein were made only qua spectrum. Before
1741 examining the strength of the rival stands, we may briefly
1742 recapitulate the principles that govern the determination of the ‘law
1743 declared’ by a judgment and its true ratio.
1744
1745
1746 66. Article 141 of the Constitution lays down that the ‘law declared’ by
1747 the Supreme Court is binding upon all the courts within the territory
1748 of India. The ‘law declared’ has to be construed as a principle of
1749 law that emanates from a judgment, or an interpretation of a law or
1750 judgment by the Supreme Court, upon which, the case is decided. [See:
1751 Fida Hussain & Ors. Vs. Moradabad Development Authority & Anr.[19]].
1752 Hence, it flows from the above that the ‘law declared’ is the
1753 principle culled out on the reading of a judgment as a whole in light
1754 of the questions raised, upon which the case is decided. [Also see:
1755 Ambica Quarry Works Vs. State of Gujarat & Ors.[20] and Commissioner
1756 of Income Tax Vs. Sun Engineering Works (P) Ltd.[21]]. In other
1757 words, the ‘law declared’ in a judgment, which is binding upon courts,
1758 is the ratio decidendi of the judgment. It is the essence of a
1759 decision and the principle upon which, the case is decided, which has
1760 to be ascertained in relation to the subject-matter of the decision.
1761
1762 67. Each case entails a different set of facts and a decision is a
1763 precedent on its own facts; not everything said by a Judge while
1764 giving a judgment can be ascribed precedental value. The essence of a
1765 decision that binds the parties to the case is the principle upon
1766 which the case is decided and for this reason, it is important to
1767 analyse a decision and cull out from it, the ratio decidendi. In the
1768 matter of applying precedents, the erudite Justice Benjamin Cardozo in
1769 “The Nature of a Judicial Processâ€, had said that “if the judge is to
1770 pronounce it wisely, some principles of selection there must be to
1771 guide him along all potential judgments that compete for recognitionâ€
1772 and “almost invariably his first step is to examine and compare them;â€
1773 “it is a process of search, comparison and little more†and ought not
1774 to be akin to matching “the colors of the case at hand against the
1775 colors of many sample cases†because in that case “the man who had the
1776 best card index of the cases would also be the wisest judgeâ€. Warning
1777 against comparing precedents with matching colours of one case with
1778 another, he summarized the process, in case the colours don’t match,
1779 in the following wise words:-
1780
1781
1782 “It is when the colors do not match, when the references in the index
1783 fail, when there is no decisive precedent, that the serious business
1784 of the judge begins. He must then fashion law for the litigants
1785 before him. In fashioning it for them, he will be fashioning it for
1786 others. The classic statement is Bacon’s: “For many times, the things
1787 deduced to judgment may be meum and tuum, when the reason and
1788 consequence thereof may trench to point of estate. The sentence of
1789 today will make the right and wrong of tomorrow.â€
1790
1791
1792
1793
1794
1795
1796 68. With reference to the precedential value of decisions, in State of
1797 Orissa & Ors. Vs. Md. Illiyas[22] this Court observed:
1798
1799 “…According to the well-settled theory of precedents, every decision
1800 contains three basic postulates: (i) findings of material facts,
1801 direct and inferential. An inferential finding of facts is the
1802 inference which the Judge draws from the direct, or perceptible facts;
1803 (ii) statements of the principles of law applicable to the legal
1804 problems disclosed by the facts; and (iii) judgment based on the
1805 combined effect of the above. A decision is an authority for what it
1806 actually decides. What is of the essence in a decision is its ratio
1807 and not every observation found therein nor what logically flows from
1808 the various observations made in the judgment…â€
1809
1810
1811
1812 69. Recently, in Union of India Vs. Amrit Lal Manchanda & Anr.[23], this
1813 Court has observed as follows:
1814
1815 “…Observations of courts are neither to be read as Euclid's theorems
1816 nor as provisions of the statute and that too taken out of their
1817 context. These observations must be read in the context in which they
1818 appear to have been stated. Judgments of courts are not to be
1819 construed as statutes. To interpret words, phrases and provisions of a
1820 statute, it may become necessary for Judges to embark into lengthy
1821 discussions but the discussion is meant to explain and not to define.
1822 Judges interpret statutes, they do not interpret judgments. They
1823 interpret words of statutes; their words are not to be interpreted as
1824 statutes.â€
1825
1826
1827
1828
1829 70. It is also important to read a judgment as a whole keeping in mind
1830 that it is not an abstract academic discourse with universal
1831 applicability, but heavily grounded in the facts and circumstances of
1832 the case. Every part of a judgment is intricately linked to others
1833 constituting a larger whole and thus, must be read keeping the logical
1834 thread intact. In this regard, in Islamic Academy of Education & Anr.
1835 Vs. State of Karnataka & Ors.[24], the Court made the following
1836 observations:
1837
1838 “The ratio decidendi of a judgment has to be found out only on reading
1839 the entire judgment. In fact, the ratio of the judgment is what is set
1840 out in the judgment itself. The answer to the question would
1841 necessarily have to be read in the context of what is set out in the
1842 judgment and not in isolation. In case of any doubt as regards any
1843 observations, reasons and principles, the other part of the judgment
1844 has to be looked into. By reading a line here and there from the
1845 judgment, one cannot find out the entire ratio decidendi of the
1846 judgment.â€
1847
1848
1849
1850
1851
1852 71. The ratio of the 2G Case must, therefore, be understood and
1853 appreciated in light of the above guiding principles.
1854
1855
1856
1857
1858 72. In the 2G Case, the Bench framed five questions. Questions No. (ii)
1859 and (v) pertain to the factual matrix and are not relevant for
1860 settling the controversy at hand. The remaining three questions are
1861 reproduced below:
1862 “(i) Whether the Government has the right to alienate, transfer or
1863 distribute natural resources/national assets otherwise than by
1864 following a fair and transparent method consistent with the
1865 fundamentals of the equality clause enshrined in the Constitution?
1866
1867
1868 (iii) Whether the exercise undertaken by DoT from September 2007
1869 to March 2008 for grant of UAS licences to the private respondents in
1870 terms of the recommendations made by TRAI is vitiated due to
1871 arbitrariness and mala fides and is contrary to public interest?
1872
1873 (iv) Whether the policy of first-come-first-served followed by DoT for
1874 grant of licences is ultra vires the provisions of Article 14 of the
1875 Constitution and whether the said policy was arbitrarily changed by
1876 the Minister of Communications and Information Technology (hereinafter
1877 referred to as “the Minister of Communications and Information
1878 Technologyâ€), without consulting TRAI, with a view to favour some of
1879 the applicants?â€
1880
1881 73. While dealing with question No.(i), the Court observed that the State
1882 is empowered to distribute natural resources as they constitute public
1883 property/national assets. Thereafter, the Bench observed as follows:
1884 “75.…while distributing natural resources the State is bound to act in
1885 consonance with the principles of equality and public trust and ensure
1886 that no action is taken which may be detrimental to public interest.
1887 Like any other State action, constitutionalism must be reflected at
1888 every stage of the distribution of natural resources. In Article 39(b)
1889 of the Constitution it has been provided that the ownership and
1890 control of the material resources of the community should be so
1891 distributed so as to best subserve the common good, but no
1892 comprehensive legislation has been enacted to generally define natural
1893 resources and a framework for their protection...â€
1894
1895
1896 74. The learned Judges adverted to the ‘public trust doctrine’ as
1897 enunciated in The Illinois Central Railroad Co. Vs. The People of the
1898 State of Illinois[25]; M.C. Mehta Vs. Kamal Nath & Ors.[26]; Jamshed
1899 Hormusji Wadia Vs. Board of Trustees, Port of Mumbai & Anr.[27];
1900 Intellectuals Forum, Tirupathi Vs. State of A.P. & Ors.[28]; Fomento
1901 Resorts And Hotels Limited & Anr. Vs. Minguel Martins & Ors.[29] and
1902 Reliance Natural Resources Limited Vs. Reliance Industries Limited[30]
1903 and held:
1904 “85. As natural resources are public goods, the doctrine of equality,
1905 which emerges from the concepts of justice and fairness, must guide
1906 the State in determining the actual mechanism for distribution of
1907 natural resources. In this regard, the doctrine of equality has two
1908 aspects: first, it regulates the rights and obligations of the State
1909 vis-Ã -vis its people and demands that the people be granted equitable
1910 access to natural resources and/or its products and that they are
1911 adequately compensated for the transfer of the resource to the private
1912 domain; and second, it regulates the rights and obligations of the
1913 State vis-Ã -vis private parties seeking to acquire/use the resource
1914 and demands that the procedure adopted for distribution is just, non-
1915 arbitrary and transparent and that it does not discriminate between
1916 similarly placed private parties.â€
1917
1918
1919Referring to the decisions of this Court in Akhil Bhartiya Upbhokta
1920Congress Vs. State of Madhya Pradesh & Ors.[31] and Sachidanand Pandey &
1921Anr. Vs. State of West Bengal & Ors.[32], the Bench ultimately concluded
1922thus:
1923 “89. In conclusion, we hold that the State is the legal owner of the
1924 natural resources as a trustee of the people and although it is
1925 empowered to distribute the same, the process of distribution must be
1926 guided by the constitutional principles including the doctrine of
1927 equality and larger public good.â€
1928
1929
1930
1931 75. On a reading of the above paragraphs, it can be noticed that the
1932 doctrine of equality; larger public good, adoption of a transparent
1933 and fair method, opportunity of competition; and avoidance of any
1934 occasion to scuttle the claim of similarly situated applicants were
1935 emphasised upon. While dealing with alienation of natural resources
1936 like spectrum, it was stated that it is the duty of the State to
1937 ensure that a non-discriminatory method is adopted for distribution
1938 and alienation which would necessarily result in the protection of
1939 national/public interest.
1940
1941
1942
1943
1944 76. Paragraphs 85 and 89, while referring to the concept of ‘public trust
1945 doctrine’, lay emphasis on the doctrine of equality, which has been
1946 segregated into two parts – one is the substantive part and the other
1947 is the regulatory part. In the regulatory facet, paragraph 85 states
1948 that the procedure adopted for distribution should be just and non-
1949 arbitrary and must be guided by constitutional principles including
1950 the doctrine of equality and larger public good. Similarly, in
1951 paragraph 89 stress has been laid on transparency and fair opportunity
1952 of competition. It is further reiterated that the burden of the State
1953 is to ensure that a non-discriminatory method is adopted for
1954 distribution and alienation which would necessarily result in the
1955 protection of national and public interest.
1956
1957 77. Dealing with Questions No.(iii) and (iv) in paragraphs 94 to 96 of the
1958 judgment, the Court opined as follows:
1959 “94. There is a fundamental flaw in the first-come-first-served policy
1960 inasmuch as it involves an element of pure chance or accident. In
1961 matters involving award of contracts or grant of licence or permission
1962 to use public property, the invocation of first-come-first-served
1963 policy has inherently dangerous implications. Any person who has
1964 access to the power corridor at the highest or the lowest level may be
1965 able to obtain information from the government files or the files of
1966 the agency/instrumentality of the State that a particular public
1967 property or asset is likely to be disposed of or a contract is likely
1968 to be awarded or a licence or permission is likely to be given, he
1969 would immediately make an application and would become entitled to
1970 stand first in the queue at the cost of all others who may have a
1971 better claim.
1972
1973
1974 95. This Court has repeatedly held that wherever a contract is to be
1975 awarded or a licence is to be given, the public authority must adopt a
1976 transparent and fair method for making selections so that all eligible
1977 persons get a fair opportunity of competition. To put it differently,
1978 the State and its agencies/ instrumentalities must always adopt a
1979 rational method for disposal of public property and no attempt should
1980 be made to scuttle the claim of worthy applicants. When it comes to
1981 alienation of scarce natural resources like spectrum, etc. it is the
1982 burden of the State to ensure that a non-discriminatory method is
1983 adopted for distribution and alienation, which would necessarily
1984 result in protection of national/public interest.
1985
1986
1987 96. In our view, a duly publicised auction conducted fairly and
1988 impartially is perhaps the best method for discharging this burden and
1989 the methods like first-come-first-served when used for alienation of
1990 natural resources/public property are likely to be misused by
1991 unscrupulous people who are only interested in garnering maximum
1992 financial benefit and have no respect for the constitutional ethos and
1993 values. In other words, while transferring or alienating the natural
1994 resources, the State is duty-bound to adopt the method of auction by
1995 giving wide publicity so that all eligible persons can participate in
1996 the process.â€
1997
1998
1999
2000
2001 78. Our reading of these paragraphs suggests that the Court was not
2002 considering the case of auction in general, but specifically
2003 evaluating the validity of those methods adopted in the distribution
2004 of spectrum from September 2007 to March 2008. It is also pertinent
2005 to note that reference to auction is made in the subsequent paragraph
2006 (96) with the rider ‘perhaps’. It has been observed that “a duly
2007 publicized auction conducted fairly and impartially is perhaps the
2008 best method for discharging this burden.†We are conscious that a
2009 judgment is not to be read as a statute, but at the same time, we
2010 cannot be oblivious to the fact that when it is argued with vehemence
2011 that the judgment lays down auction as a constitutional principle, the
2012 word “perhaps†gains significance. This suggests that the
2013 recommendation of auction for alienation of natural resources was
2014 never intended to be taken as an absolute or blanket statement
2015 applicable across all natural resources, but simply a conclusion made
2016 at first blush over the attractiveness of a method like auction in
2017 disposal of natural resources. The choice of the word ‘perhaps’
2018 suggests that the learned Judges considered situations requiring a
2019 method other than auction as conceivable and desirable.
2020
2021
2022
2023
2024
2025 79. Further, the final conclusions summarized in paragraph 102 of the
2026 judgment (SCC) make no mention about auction being the only
2027 permissible and intra vires method for disposal of natural resources;
2028 the findings are limited to the case of spectrum. In case the Court
2029 had actually enunciated, as a proposition of law, that auction is the
2030 only permissible method or mode for alienation/allotment of natural
2031 resources, the same would have found a mention in the summary at the
2032 end of the judgment.
2033
2034
2035
2036
2037
2038 80. Moreover, if the judgment is to be read as holding auction as the only
2039 permissible means of disposal of all natural resources, it would lead
2040 to the quashing of a large number of laws that prescribe methods other
2041 than auction, e.g., the MMRD Act. While dealing with the merits of
2042 the Reference, at a later stage, we will discuss whether or not
2043 auction can be a constitutional mandate under Article 14 of the
2044 Constitution, but for the present, it would suffice to say that no
2045 court would ever implicitly, indirectly, or by inference, hold a range
2046 of laws as ultra vires the Constitution, without allowing every law to
2047 be tested on its merits. One of the most profound tenets of
2048 constitutionalism is the presumption of constitutionality assigned to
2049 each legislation enacted. We find that the 2G Case does not even
2050 consider a plethora of laws and judgments that prescribe methods,
2051 other than auction, for dispensation of natural resources; something
2052 that it would have done, in case, it intended to make an assertion as
2053 wide as applying auction to all natural resources. Therefore, we are
2054 convinced that the observations in Paras 94 to 96 could not apply
2055 beyond the specific case of spectrum, which according to the law
2056 declared in the 2G Case, is to be alienated only by auction and no
2057 other method.
2058
2059
2060
2061
2062
2063 81. Thus, having come to the conclusion that the 2G Case does not deal
2064 with modes of allocation for natural resources, other than spectrum,
2065 we shall now proceed to answer the first question of the Reference
2066 pertaining to other natural resources, as the question subsumes the
2067 essence of the entire reference, particularly the set of first five
2068 questions.
2069
2070
2071
2072
2073
2074 82. The President seeks this Court’s opinion on the limited point of
2075 permissibility of methods other than auction for alienation of natural
2076 resources, other than spectrum. The question also harbours several
2077 concepts, which were argued before us through the hearing of the
2078 Reference, that require to be answered in order to derive a
2079 comprehensive answer to the parent question. Are some methods ultra
2080 vires and others intra vires the Constitution of India, especially
2081 Article 14? Can disposal through the method of auction be elevated to
2082 a Constitutional principle? Is this Court entitled to direct the
2083 executive to adopt a certain method because it is the ‘best’ method?
2084 If not, to what extent can the executive deviate from such ‘best’
2085 method? An answer to these issues, in turn, will give an answer to
2086 the first question which, as noted above, will answer the Presidential
2087 Reference.
2088
2089
2090
2091
2092
2093 83. Before proceeding to answer these questions, we would like to dispose
2094 of a couple of minor objections. The first pertained to the
2095 classification of resources made in the 2G Case. Learned counsel
2096 appearing for CPIL argued that all that the judgment in the 2G Case
2097 has done is to carve out a special category of cases where public
2098 auction is the only legally sustainable method of alienation viz.
2099 natural resources that are scarce, valuable and are allotted to
2100 private entities for commercial exploitation. The learned Attorney
2101 General, however, contested this claim and argued that no such
2102 proposition was laid down in the 2G judgment. He pointed out that the
2103 words “commercial exploitation†were not even used anywhere in the
2104 judgment except in an extract from another judgment in a different
2105 context. We agree that the judgment itself does not carve out any
2106 special case for scarce natural resources only meant for commercial
2107 exploitation. However, we feel, despite that, in this Reference, CPIL
2108 is not barred from making a submission drawing a distinction between
2109 natural resources meant for commercial exploitation and those meant
2110 for other purposes. This Court has the jurisdiction to classify the
2111 subject matter of a reference, if a genuine case for it exists.
2112
2113
2114 84. Mr. Shanti Bhushan, learned Senior Counsel, in support of his
2115 stand that the first question of the Reference must be
2116 answered in a way so as to allow auction as the only
2117 mode for the disposal of natural resources, submitted that a
2118 combined reading of Article 14, which dictates non- arbitrariness in
2119 State action and equal opportunity to those similarly placed; Article
2120 39(b) which is a Directive Principle of State Policy dealing with
2121 distribution of natural resources for the common good of the people;
2122 and the “trusteeship†principle found in the Preamble which mandates
2123 that the State holds all natural resources in the capacity of a
2124 trustee, on behalf of the people, would make auction a constitutional
2125 mandate under Article 14 of the Constitution. It is imperative,
2126 therefore, that we evaluate each of these principles before coming to
2127 any conclusion on the constitutional verdict on auction.
2128
2129
2130
2131
2132 85. In the 2G Case, two concepts namely, “public trust doctrine†and
2133 “trusteeship†have been adverted to, which were also relied upon by
2134 learned counsel for CPIL, in defence of the argument that the State
2135 holds natural resources in a fiduciary relationship with the people.
2136 As far as “trusteeship†is concerned, there is no cavil that the State
2137 holds all natural resources as a trustee of the public and must deal
2138 with them in a manner that is consistent with the nature of such a
2139 trust. However, what was asserted on behalf of CPIL was that all
2140 natural resources fall within the domain of the “public trust
2141 doctrineâ€, and therefore, there is an obligation on the Government to
2142 ensure that their transfer or alienation for commercial exploitation
2143 is in a fair and transparent manner and only in pursuit of public
2144 good. The learned Attorney General on the other hand, zealously urged
2145 that the subject matter of the doctrine and the nature of
2146 restrictions, it imposes, are of limited scope; that the applicability
2147 of the doctrine is restricted to certain common properties pertaining
2148 to the environment, like rivers, seashores, forest and air, meant for
2149 free and unimpeded use of the general public and the restrictions it
2150 imposes is in the term of a complete embargo on any alienation of such
2151 resources, for private ownership. According to him, the extension of
2152 the public trust doctrine to all natural resources has led to a
2153 considerable confusion and needs to be clarified.
2154
2155
2156
2157 86. The doctrine of public trust enunciated more thoroughly by the United
2158 States Supreme Court in Illinois (supra) was introduced to Indian
2159 environmental jurisprudence by this Court in M.C. Mehta (supra).
2160 Speaking for the majority, Kuldip Singh, J. observed as follows :
2161
2162 “25. The Public Trust Doctrine primarily rests on the principle that
2163 certain resources like air, sea, waters and the forests have such a
2164 great importance to the people as a whole that it would be wholly
2165 unjustified to make them a subject of private ownership. The said
2166 resources being a gift of nature, they should be made freely available
2167 to everyone irrespective of the status in life. The doctrine enjoins
2168 upon the Government to protect the resources for the enjoyment of the
2169 general public rather than to permit their use for private ownership
2170 or commercial purposes. According to Professor Sax the Public Trust
2171 Doctrine imposes the following restrictions on governmental authority:
2172
2173
2174 ‘Three types of restrictions on governmental authority are often
2175 thought to be imposed by the public trust: first, the property
2176 subject to the trust must not only be used for a public purpose,
2177 but it must be held available for use by the general public;
2178 second, the property may not be sold, even for a fair cash
2179 equivalent; and third the property must be maintained for
2180 particular types of uses’.â€
2181
2182The learned Judge further observed:-
2183
2184 “34. Our legal system — based on English common law — includes the
2185 public trust doctrine as part of its jurisprudence. The State is the
2186 trustee of all natural resources which are by nature meant for public
2187 use and enjoyment. Public at large is the beneficiary of the sea-
2188 shore, running waters, airs, forests and ecologically fragile lands.
2189 The State as a trustee is under a legal duty to protect the natural
2190 resources. These resources meant for public use cannot be converted
2191 into private ownership.â€
2192
2193
2194 87. The judgment in Kamal Nath’s case (supra) was explained in
2195 Intellectuals Forum (supra). Reiterating that the State is the
2196 trustee of all natural resources which are by nature meant for public
2197 use and enjoyment, the Court observed thus:
2198 “76. The Supreme Court of California, in National Audubon Society Vs.
2199 Superior Court of Alpine Country also known as Mono Lake case summed
2200 up the substance of the doctrine. The Court said:
2201
2202
2203 “Thus the public trust is more than an affirmation of State
2204 power to use public property for public purposes. It is an
2205 affirmation of the duty of the State to protect the people's
2206 common heritage of streams, lakes, marshlands and tidelands,
2207 surrendering the right only in those rare cases when the
2208 abandonment of the right is consistent with the purposes of the
2209 trust.â€
2210
2211
2212 This is an articulation of the doctrine from the angle of the
2213 affirmative duties of the State with regard to public trust.
2214 Formulated from a negatory angle, the doctrine does not exactly
2215 prohibit the alienation of the property held as a public trust.
2216 However, when the State holds a resource that is freely available for
2217 the use of the public, it provides for a high degree of judicial
2218 scrutiny on any action of the Government, no matter how consistent
2219 with the existing legislations, that attempts to restrict such free
2220 use. To properly scrutinise such actions of the Government, the courts
2221 must make a distinction between the Government's general obligation to
2222 act for the public benefit, and the special, more demanding obligation
2223 which it may have as a trustee of certain public resources…â€
2224
2225
2226
2227
2228It was thus, held that when the affirmative duties are set out from a
2229nugatory angle, the doctrine does not exactly prohibit the alienation of
2230property held as a public trust, but mandates a high degree of judicial
2231scrutiny.
2232
2233
2234
2235 88. In Fomento (supra), the Court was concerned with the access of the
2236 public to a beach in Goa. Holding that it was a public beach which
2237 could not be privatized or blocked denying traditional access, this
2238 Court reiterated the public trust doctrine as follows:
2239 “52. The matter deserves to be considered from another angle. The
2240 public trust doctrine which has been invoked by Ms Indira Jaising in
2241 support of her argument that the beach in question is a public beach
2242 and the appellants cannot privatise the same by blocking/ obstructing
2243 traditional access available through Survey No. 803 (new No. 246/2) is
2244 implicitly engrafted by the State Government in Clause 4(ix) of the
2245 agreement. That doctrine primarily rests on the principle that certain
2246 resources like air, sea, waters and the forests have such a great
2247 importance to the people as a whole that it would be wholly
2248 unjustified to make them a subject of private ownership. These
2249 resources are gift of nature, therefore, they should be freely
2250 available to everyone irrespective of one's status in life.â€
2251
2252
2253
2254
2255 89. In Reliance Natural Resources (supra), it has been observed that even
2256 though the doctrine of pubic trust has been applied in cases dealing
2257 with environmental jurisprudence, “it has broader applicationâ€.
2258 Referring to Kamal Nath (supra), the Court held that it is the duty of
2259 the Government to provide complete protection to the natural resources
2260 as a trustee of the people at large.
2261
2262
2263
2264 90. The public trust doctrine is a specific doctrine with a particular
2265 domain and has to be applied carefully. It has been seriously debated
2266 before us as to whether the doctrine can be applied beyond the realm
2267 of environmental protection. Richard J. Lazarus in his article,
2268 “Changing Conceptions of Property and Sovereignty in Natural
2269 Resources: Questioning the Public Trust Doctrineâ€, while expressing
2270 scepticism over the ‘liberation’ of the doctrine, makes the following
2271 observations:-
2272
2273
2274 “The strength of the public trust doctrine necessarily lies in its
2275 origins; navigable waters and submerged lands are the focus of the
2276 doctrine, and the basic trust interests in navigation, commerce, and
2277 fishing are the object of its guarantee of public access.
2278 Commentators and judges alike have made efforts to “liberateâ€,
2279 “expandâ€, and “modify†the doctrine’s scope yet its basic focus
2280 remains relatively unchanged. Courts still repeatedly return to the
2281 doctrine’s historical function to determine its present role. When
2282 the doctrine is expanded, more often than not the expansions require
2283 tortured constructions of the present rather than repudiations of the
2284 doctrine’s past.â€
2285
2286
2287
2288
2289
2290
2291
2292However, we feel that for the purpose of the present opinion, it is not
2293necessary to delve deep into the issue as in Intellectuals Forum (supra),
2294the main departure from the principle explained by Joseph. L. Sax in his
2295Article “The Public Trust Doctrine in Natural Resource Law: Effective
2296Judicial Intervention†is that public trust mandates a high degree of
2297judicial scrutiny, an issue that we will anyway elaborately discuss while
2298enunciating the mandate of Article 14 of the Constitution.
2299
2300
2301
2302
2303 91. We would also like to briskly deal with a similar argument made by Mr.
2304 Shanti Bhushan. The learned senior counsel submitted that the
2305 repository of sovereignty in our framework is the people of this
2306 country since the opening words of the Constitution read “We The
2307 People of India… do hereby adopt, enact and give to ourselves this
2308 Constitution,†and therefore the government, as the agent of the
2309 Sovereign, the people, while alienating natural resources, must heed
2310 to judicial care and due process. Firstly, this Court has held in
2311 Raja Ram Pal Vs. Hon’ble Speaker, Lok Sabha & Ors.[33] that the
2312 “Constitution is the supreme lex in this country†and “all organs of
2313 the State derive their authority, jurisdiction and powers from the
2314 Constitution and owe allegiance to itâ€. Further, the notion that the
2315 Parliament is an agent of the people was squarely rebutted in In Re:
2316 Delhi Laws Act, 1912 (supra), where it was observed that “the
2317 legislature as a body cannot be seen to be an agency of the electorate
2318 as a whole†and “acts on its own authority or power which it derives
2319 from the Constitutionâ€.
2320
2321
2322
2323
2324 92. In Municipal Corporation of Delhi Vs. Birla Cotton, Spinning and
2325 Weaving Mills, Delhi & Anr.[34] this Court held that “the doctrine
2326 that it (the Parliament) is a delegate of the people coloured certain
2327 American decision does not arise here†and that in fact the
2328 “Parliament which by a concentration of all the powers of legislation
2329 derived from all the three Legislative Lists becomes the most
2330 competent and potent legislature it is possible to erect under our
2331 Constitution.†We however, appreciate the concern of Mr. Shanti
2332 Bhushan that the lack of any such power in the hands of the people
2333 must not be a sanction for recklessness during disposal of natural
2334 resources. The legislature and the Executive are answerable to the
2335 Constitution and it is there where the judiciary, the guardian of the
2336 Constitution, must find the contours to the powers of disposal of
2337 natural resources, especially Article 14 and Article 39(b).
2338
2339
2340
2341
2342
2343MANDATE OF ARTICLE 14:
2344
2345
2346 93. Article 14 runs as follows:
2347
2348 “14. Equality before law. – The State shall not deny to any person
2349 equality before the law or the equal protection of the laws within the
2350 territory of India.â€
2351
2352
2353
2354
2355
2356
2357
2358 94. The underlying object of Article 14 is to secure to all persons,
2359 citizens or non-citizens, the equality of status and opportunity
2360 referred to in the preamble to our Constitution. The language of
2361 Article 14 is couched in negative terms and is in form, an admonition
2362 addressed to the State. It does not directly purport to confer any
2363 right on any person as some of the other Articles, e.g., Article 19,
2364 do. The right to equality before law is secured from all legislative
2365 and executive tyranny by way of discrimination since the language of
2366 Article 14 uses the word “State†which as per Article 12, includes the
2367 executive organ. [See: Basheshar Nath Vs. The Commissioner of Income
2368 Tax, Delhi & Rajasthan & Anr.[35]]. Besides, Article 14 is expressed
2369 in absolute terms and its effect is not curtailed by restrictions like
2370 those imposed on Article 19(1) by Articles 19(2)-(6). However,
2371 notwithstanding the absence of such restrictions, certain tests have
2372 been devised through judicial decisions to test if Article 14 has been
2373 violated or not.
2374
2375
2376
2377
2378 95. For the first couple of decades after the establishment of this Court,
2379 the ‘classification’ test was adopted which allowed for a
2380 classification between entities as long as it was based on an
2381 intelligible differentia and displayed a rational nexus with the
2382 ultimate objective of the policy. Budhan Choudhry & Ors. Vs. State of
2383 Bihar[36] referred to in Shri Ram Krishna Dalmiya Vs. Shri Justice
2384 S.R. Tendolkar and Ors.[37] explained it in the following terms:
2385
2386 “It is now well established that while article 14 forbids class
2387 legislation, it does not forbid reasonable classification for the
2388 purposes of legislation. In order, however, to pass the test of
2389 permissible classification two conditions must be fulfilled, namely,
2390 (i) that the classification must be founded on an intelligible
2391 differentia which distinguishes persons or things that are grouped
2392 together from others left out of the group and, (ii) that that
2393 differentia must have a rational relation to the object sought to be
2394 achieved by the statute in question. The classification may be founded
2395 on different bases, namely, geographical, or according to objects or
2396 occupations or the like. What is necessary is that there must be a
2397 nexus between the basis of classification and the object of the Act
2398 under consideration. It is also well established by the decisions of
2399 this Court that article 14 condemns discrimination not only by a
2400 substantive law but also by a law of procedure.â€
2401
2402
2403
2404
2405
2406 96. However, after the judgment of this Court in E.P. Royappa Vs. State of
2407 Tamil Nadu & Anr[38] the ‘arbitrariness’ doctrine was introduced which
2408 dropped a pedantic approach towards equality and held the mere
2409 existence of arbitrariness as violative of Article 14, however equal
2410 in its treatment. Justice Bhagwati (as his Lordship was then)
2411 articulated the dynamic nature of equality and borrowing from
2412 Shakespeare’s Macbeth, said that the concept must not be “cribbed,
2413 cabined and confined†within doctrinaire limits: -
2414
2415 “85. …Now, what is the content and reach of this great equalising
2416 principle? It is a founding faith, to use the words of Bose. J., “a
2417 way of lifeâ€, and it must not be subjected to a narrow pedantic or
2418 lexicographic approach. We cannot countenance any attempt to truncate
2419 its all-embracing scope and meaning, for to do so would be to violate
2420 its activist magnitude. Equality is a dynamic concept with many
2421 aspects and dimensions and it cannot be “cribbed, cabined and
2422 confined†within traditional and doctrinaire limits.â€
2423
2424
2425
2426
2427His Lordship went on to explain the length and breadth of Article 14 in the
2428following lucid words:
2429 “85… From a positivistic point of view, equality is antithetic to
2430 arbitrariness. In fact equality and arbitrariness are sworn enemies;
2431 one belongs to the rule of law in a republic while the other, to the
2432 whim and caprice of an absolute monarch. Where an act is arbitrary, it
2433 is implicit in it that it is unequal both according to political logic
2434 and constitutional law and is therefore violative of Article 14, and
2435 if it effects any matter relating to public employment, it is also
2436 violative of Article 16. Articles 14 and 16 strike at arbitrariness in
2437 State action and ensure fairness and equality of treatment. They
2438 require that State action must be based on valid relevant principles
2439 applicable alike to all similarly situate and it must not be guided by
2440 any extraneous or irrelevant considerations because that would be
2441 denial of equality. Where the operative reason for State action, as
2442 distinguished from motive inducing from the antechamber of the mind,
2443 is not legitimate and relevant but is extraneous and outside the area
2444 of permissible considerations, it would amount to mala fide exercise
2445 of power and that is hit by Articles 14 and 16. Mala fide exercise of
2446 power and arbitrariness are different lethal radiations emanating from
2447 the same vice: in fact the latter comprehends the former. Both are
2448 inhibited by Articles 14 and 16.â€
2449
2450 97. Building upon his opinion delivered in Royappa’s case (supra),
2451 Bhagwati, J., held in Maneka Gandhi Vs. Union of India & Anr.[39]:
2452
2453 “The principle of reasonableness, which legally as well as
2454 philosophically, is an essential element of equality or non-
2455 arbitrariness pervades Article 14 like a brooding omnipresence and the
2456 procedure contemplated by Article 21 must answer the test of
2457 reasonableness in order to be in conformity with Article 14. It must
2458 be “right and just and fair†and not arbitrary, fanciful or
2459 oppressive.â€
2460
2461
2462 98. In Ajay Hasia & Ors. Vs. Khalid Mujib Sehravardi & Ors.[40], this
2463 Court said that the ‘arbitrariness’ test was lying “latent and
2464 submerged†in the “simple but pregnant†form of Article 14 and
2465 explained the switch from the ‘classification’ doctrine to the
2466 ‘arbitrariness’ doctrine in the following words:
2467 “16…The doctrine of classification which is evolved by the courts is
2468 not paraphrase of Article 14 nor is it the objective and end of that
2469 article. It is merely a judicial formula for determining whether the
2470 legislative or executive action in question is arbitrary and therefore
2471 constituting denial of equality. If the classification is not
2472 reasonable and does not satisfy the two conditions referred to above,
2473 the impugned legislative or executive action would plainly be
2474 arbitrary and the guarantee of equality under Article 14 would be
2475 breached. Wherever therefore there is arbitrariness in State action
2476 whether it be of the legislature or of the executive or of an
2477 ‘authority’ under Article 12, Article 14 immediately springs into
2478 action and strikes down such State action. In fact, the concept of
2479 reasonableness and non-arbitrariness pervades the entire
2480 constitutional scheme and is a golden thread which runs through the
2481 whole of the fabric of the Constitution.â€
2482
2483
2484
2485 99. Ramana Dayaram Shetty Vs. International Airport Authority of India &
2486 Ors.[41] explained the limitations of Article 14 on the functioning
2487 of the Government as follows: -
2488 “12…It must, therefore, be taken to be the law that where the
2489 Government is dealing with the public, whether by way of giving jobs
2490 or entering into contracts or issuing quotas or licences or granting
2491 other forms of largesse, the Government cannot act arbitrarily at its
2492 sweet will and, like a private individual, deal with any person it
2493 pleases, but its action must be in conformity with standard or norms
2494 which is not arbitrary, irrational or irrelevant. The power or
2495 discretion of the Government in the matter of grant of largesse
2496 including award of jobs, contracts, quotas, licences, etc. must be
2497 confined and structured by rational, relevant and non-discriminatory
2498 standard or norm and if the Government departs from such standard or
2499 norm in any particular case or cases, the action of the Government
2500 would be liable to be struck down, unless it can be shown by the
2501 Government that the departure was not arbitrary, but was based on some
2502 valid principle which in itself was not irrational, unreasonable or
2503 discriminatory.â€
2504
2505
2506
2507 100. Equality and arbitrariness were thus, declared “sworn enemies†and
2508 it was held that an arbitrary act would fall foul of the right to
2509 equality. Non-arbitrariness was equated with the rule of law about
2510 which Jeffrey Jowell in his seminal article “The Rule of Law Todayâ€
2511 said: -
2512 “Rule of law principle primarily applies to the power of
2513 implementation. It mainly represents a state of procedural fairness.
2514 When the rule of law is ignored by an official it may on occasion be
2515 enforced by courts.â€
2516
2517
2518
2519
2520
2521 101. As is evident from the above, the expressions ‘arbitrariness’ and
2522 ‘unreasonableness’ have been used interchangeably and in fact, one
2523 has been defined in terms of the other. More recently, in Sharma
2524 Transport Vs. Government of A.P. & Ors.[42], this Court has
2525 observed thus:
2526 “25…In order to be described as arbitrary, it must be shown that it
2527 was not reasonable and manifestly arbitrary. The expression
2528 “arbitrarily†means: in an unreasonable manner, as fixed or done
2529 capriciously or at pleasure, without adequate determining principle,
2530 not founded in the nature of things, non-rational, not done or acting
2531 according to reason or judgment, depending on the will alone.â€
2532
2533
2534
2535
2536
2537
2538
2539
2540 102. Further, even though the ‘classification’ doctrine was never
2541 overruled, it has found less favour with this Court as compared to the
2542 ‘arbitrariness’ doctrine. In Om Kumar & Ors. Vs. Union of India[43],
2543 this Court held thus:
2544 “59. But, in E.P. Royappa v. State of T. N. Bhagwati, J laid down
2545 another test for purposes of Article 14. It was stated that if the
2546 administrative action was “arbitraryâ€, it could be struck down under
2547 Article 14. This principle is now uniformly followed in all courts
2548 more rigorously than the one based on classification. Arbitrary action
2549 by the administrator is described as one that is irrational and not
2550 based on sound reason. It is also described as one that is
2551 unreasonable.â€
2552
2553
2554 103. However, this Court has also alerted against the arbitrary use of the
2555 ‘arbitrariness’ doctrine. Typically, laws are struck down for
2556 violating Part III of the Constitution of India, legislative
2557 incompetence or excessive delegation. However, since Royappa’s case
2558 (supra), the doctrine has been loosely applied. This Court in State of
2559 A.P. & Ors. Vs. McDowell & Co. & Ors.[44] stressed on the need for an
2560 objective and scientific analysis of arbitrariness, especially while
2561 striking down legislations. Justice Jeevan Reddy observed:
2562
2563 “43…The power of Parliament or for that matter, the State Legislatures
2564 is restricted in two ways. A law made by Parliament or the
2565 legislature can be struck down by courts on two grounds and two
2566 grounds alone, viz., (1) lack of legislative competence and (2)
2567 violation of any of the fundamental rights guaranteed in Part III of
2568 the Constitution or of any other constitutional provision. There is no
2569 third ground. We do not wish to enter into a discussion of the
2570 concepts of procedural unreasonableness and substantive
2571 unreasonableness — concepts inspired by the decisions of United States
2572 Supreme Court. Even in U.S.A., these concepts and in particular the
2573 concept of substantive due process have proved to be of unending
2574 controversy, the latest thinking tending towards a severe curtailment
2575 of this ground (substantive due process). The main criticism against
2576 the ground of substantive due process being that it seeks to set up
2577 the courts as arbiters of the wisdom of the legislature in enacting
2578 the particular piece of legislation. It is enough for us to say that
2579 by whatever name it is characterised, the ground of invalidation must
2580 fall within the four corners of the two grounds mentioned above. In
2581 other words, say, if an enactment is challenged as violative of
2582 Article 14, it can be struck down only if it is found that it is
2583 violative of the equality clause/equal protection clause enshrined
2584 therein. Similarly, if an enactment is challenged as violative of any
2585 of the fundamental rights guaranteed by clauses (a) to (g) of Article
2586 19(1), it can be struck down only if it is found not saved by any of
2587 the clauses (s) to (6) of Article 19 and so on. No enactment can be
2588 struck down by just saying that it is arbitrary** or unreasonable.
2589 Some or other constitutional infirmity has to be found before
2590 invalidating an Act. An enactment cannot be struck down on the ground
2591 that court thinks it unjustified. Parliament and the legislatures,
2592 composed as they are of the representatives of the people, are
2593 supposed to know and be aware of the needs of the people and what is
2594 good and bad for them. The court cannot sit in judgment over their
2595 wisdom. In this connection, it should be remembered that even in the
2596 case of administrative action, the scope of judicial review is limited
2597 to three grounds, viz., (i) unreasonableness, which can more
2598 appropriately be called irrationality, (ii) illegality and (iii)
2599 procedural impropriety (see Council of Civil Service Unions v.
2600 Minister for Civil Service which decision has been accepted by this
2601 Court as well).
2602
2603
2604 **An expression used widely and rather indiscriminately — an
2605 expression of inherently imprecise import. The extensive use of this
2606 expression in India reminds one of what Frankfurter, J said in Hattie
2607 Mae Tiller v. Atlantic Coast Line Railroad Co., 87 L ED 610 : 318 US
2608 54 (1943). “The phrase begins life as a literary expression; its
2609 felicity leads to its lazy repetition and repetition soon establishes
2610 it as a legal formula, undiscriminatingly used to express different
2611 and sometimes contradictory ideasâ€, said the learned Judge.â€
2612
2613
2614
2615
2616
2617
2618 104. Therefore, ever since the Royappa era, the conception of
2619 ‘arbitrariness’ has not undergone any significant change. Some
2620 decisions have commented on the doctrinal looseness of the
2621 arbitrariness test and tried keeping its folds within permissible
2622 boundaries. For instance, cases where legislation or rules have been
2623 struck down as being arbitrary in the sense of being unreasonable
2624 [See: Air India Vs. Nergesh Meerza[45] (SCC at pp. 372-373)] only on
2625 the basis of “arbitrarinessâ€, as explained above, have been doubted in
2626 McDowell’s case (supra). But otherwise, the subject matter, content
2627 and tests for checking violation of Article 14 have remained, more or
2628 less, unaltered.
2629
2630
2631 105. From a scrutiny of the trend of decisions it is clearly perceivable
2632 that the action of the State, whether it relates to distribution of
2633 largesse, grant of contracts or allotment of land, is to be tested on
2634 the touchstone of Article 14 of the Constitution. A law may not be
2635 struck down for being arbitrary without the pointing out of a
2636 constitutional infirmity as McDowell’s case (supra) has said.
2637 Therefore, a State action has to be tested for constitutional
2638 infirmities qua Article 14 of the Constitution. The action has to be
2639 fair, reasonable, non-discriminatory, transparent, non-capricious,
2640 unbiased, without favouritism or nepotism, in pursuit of promotion of
2641 healthy competition and equitable treatment. It should conform to the
2642 norms which are rational, informed with reasons and guided by public
2643 interest, etc. All these principles are inherent in the fundamental
2644 conception of Article 14. This is the mandate of Article 14 of the
2645 Constitution of India.
2646
2647
2648
2649
2650WHETHER ‘AUCTION’ A CONSTITUTIONAL MANDATE:
2651
2652 106. Such being the constitutional intent and effect of Article 14, the
2653 question arises - can auction as a method of disposal of natural
2654 resources be declared a constitutional mandate under Article 14 of the
2655 Constitution of India? We would unhesitatingly answer it in the
2656 negative since any other answer would be completely contrary to the
2657 scheme of Article 14. Firstly, Article 14 may imply positive and
2658 negative rights for an individual, but with respect to the State, it
2659 is only couched in negative terms; like an admonition against the
2660 State which prohibits the State from taking up actions that may be
2661 arbitrary, unreasonable, capricious or discriminatory. Article 14,
2662 therefore, is an injunction to the State against taking certain type
2663 of actions rather than commanding it to take particular steps. Reading
2664 the mandate of auction into its scheme would thus, be completely
2665 contrary to the intent of the Article apparent from its plain
2666 language.
2667
2668
2669
2670 107. Secondly, a constitutional mandate is an absolute principle that has
2671 to be applied in all situations; it cannot be applied in some and not
2672 tested in others. The absolute principle is then applied on a case by
2673 case basis to see which actions fulfill the requirements of the
2674 constitutional principle and which do not.
2675
2676
2677
2678 108. Justice K. Subba Rao in his lectures compiled in a book titled “Some
2679 Constitutional Problemsâ€, critically analyzing the trends of Indian
2680 constitutional development, stated as follows:
2681 “If the Courts, instead of limiting the scope of the articles by
2682 construction, exercise their jurisdiction in appropriate cases, I have
2683 no doubt that the arbitrariness of the authorities will be minimised.
2684 If these authorities entrusted with the discretionary powers, realize
2685 that their illegal orders infringing the rights of the people would be
2686 quashed by the appropriate authority, they would rarely pass orders in
2687 excess of their powers. If they knew that not only the form but the
2688 substance of the orders would be scrutinized in open court, they would
2689 try to keep within their bounds. The fear of ventilation of grievance
2690 in public has always been an effective deterrent. The apprehension
2691 that the High Courts would be swamped with writs has no basis.â€
2692
2693
2694 109. Similar sentiments were expressed by Justice K. K. Mathew in series of
2695 lectures incorporated in the form of a book titled “Democracy,
2696 Equality and Freedom†in which it is stated that “the strength of
2697 judicial review lies in case to case adjudication.†This is precisely
2698 why this Court in His Holiness Kesavananda Bharti Sripadagalvaru Vs.
2699 State of Kerala & Anr.[46] quoting from an American decision, observed
2700 as follows:
2701 “1695…The reason why the expression "due process" has never been
2702 defined is that it embodies a concept of fairness which has to be
2703 decided with reference to the facts and circumstances of each case and
2704 also according to the mores for the time being in force in a society
2705 to which the concept has to be applied. As Justice Frankfurter said,
2706 "due process" is not a technical conception with a fixed content
2707 unrelated to time, place and circumstances [See Joint Anti-Fascist
2708 Refugee Committee v. McGrath 341 U.S. 123]â€.
2709
2710 110. Equality, therefore, cannot be limited to mean only auction, without
2711 testing it in every scenario. In The State of West Bengal Vs. Anwar
2712 Ali Sarkar[47], this Court, quoting from Kotch Vs. Pilot Comm'rs[48] ,
2713 had held that “the constitutional command for a State to afford equal
2714 protection of the laws sets a goal not attainable by the invention and
2715 application of a precise formula. This Court has never attempted that
2716 impossible taskâ€. One cannot test the validity of a law with reference
2717 to the essential elements of ideal democracy, actually incorporated in
2718 the Constitution. (See: Indira Nehru Gandhi Vs. Raj Narain[49]). The
2719 Courts are not at liberty to declare a statute void, because in their
2720 opinion it is opposed to the spirit of the Constitution. Courts
2721 cannot declare a limitation or constitutional requirement under the
2722 notion of having discovered some ideal norm. Further, a
2723 constitutional principle must not be limited to a precise formula but
2724 ought to be an abstract principle applied to precise situations. The
2725 repercussion of holding auction as a constitutional mandate would be
2726 the voiding of every action that deviates from it, including social
2727 endeavours, welfare schemes and promotional policies, even though CPIL
2728 itself has argued against the same, and asked for making auction
2729 mandatory only in the alienation of scarce natural resources meant for
2730 private and commercial business ventures. It would be odd to derive
2731 auction as a constitutional principle only for a limited set of
2732 situations from the wide and generic declaration of Article 14. The
2733 strength of constitutional adjudication lies in case to case
2734 adjudication and therefore auction cannot be elevated to a
2735 constitutional mandate.
2736
2737
2738 111. Finally, reading auction as a constitutional mandate would be
2739 impermissible because such an approach may distort another
2740 constitutional principle embodied in Article 39(b). The said article
2741 enumerating certain principles of policy, to be followed by the State,
2742 reads as follows:
2743
2744 “The State shall, in particular, direct its policy towards securing –
2745
2746
2747
2748
2749 a) … … …
2750
2751 b) that the ownership and control of the material resources of
2752 the community are so distributed as best to subserve the
2753 common good;
2754
2755
2756 … … …â€
2757
2758
2759
2760The disposal of natural resources is a facet of the use and distribution of
2761such resources. Article 39(b) mandates that the ownership and control of
2762natural resources should be so distributed so as to best subserve the
2763common good. Article 37 provides that the provisions of Part IV shall not
2764be enforceable by any Court, but the principles laid down therein are
2765nevertheless fundamental in the governance of the country and it shall be
2766the duty of the State to apply these principles in making laws.
2767
2768
2769
2770 112. Therefore, this Article, in a sense, is a restriction on
2771 ‘distribution’ built into the Constitution. But the restriction is
2772 imposed on the object and not the means. The overarching and
2773 underlying principle governing ‘distribution’ is furtherance of common
2774 good. But for the achievement of that objective, the Constitution uses
2775 the generic word ‘distribution’. Distribution has broad contours and
2776 cannot be limited to meaning only one method i.e. auction. It
2777 envisages all such methods available for distribution/allocation of
2778 natural resources which ultimately subserve the “common goodâ€.
2779
2780
2781
2782 113. In State of Tamil Nadu & Ors. Vs. L. Abu Kavur Bai & Ors.[50], this
2783 Court explained the broad-based concept of ‘distribution’ as follows:
2784
2785 “89. …The word ‘distribution’ used in Article 39(b) must be broadly
2786 construed so that a court may give full and comprehensive effect to
2787 the statutory intent contained in Article 39 (b). A narrow
2788 construction of the word ‘distribution’ might defeat or frustrate the
2789 very object which the Article seeks to subserve…â€
2790
2791
2792
2793
2794
2795 114. After noting definitions of ‘distribution’ from different
2796 dictionaries, this Court held:
2797
2798 “92. It is obvious, therefore, that in view of the vast range of
2799 transactions contemplated by the word ‘distribution’ as mentioned in
2800 the dictionaries referred to above, it will not be correct to construe
2801 the word ‘distribution’ in a purely literal sense so as to mean only
2802 division of a particular kind or to particular persons. The words,
2803 apportionment, allotment, allocation, classification, clearly fall
2804 within the broad sweep of the word ‘distribution’. So construed, the
2805 word ‘distribution’ as used in Article 39(b) will include various
2806 facets, aspects, methods and terminology of a broad-based concept of
2807 distribution…â€
2808
2809
2810
2811 115. It can thus, be seen from the afore-quoted paragraphs that the term
2812 “distribute†undoubtedly, has wide amplitude and encompasses all
2813 manners and methods of distribution, which would include classes,
2814 industries, regions, private and public sections, etc. Having regard
2815 to the basic nature of Article 39(b), a narrower concept of equality
2816 under Article 14 than that discussed above, may frustrate the broader
2817 concept of distribution, as conceived in Article 39(b). There cannot,
2818 therefore, be a cavil that “common good’ and “larger public interestsâ€
2819 have to be regarded as constitutional reality deserving actualization.
2820
2821
2822 116. Learned counsel for CPIL argued that revenue maximization during the
2823 sale or alienation of a natural resource for commercial exploitation
2824 is the only way of achieving public good since the revenue collected
2825 can be channelized to welfare policies and controlling the burgeoning
2826 deficit. According to the learned counsel, since the best way to
2827 maximize revenue is through the route of auction, it becomes a
2828 constitutional principle even under Article 39(b). However, we are not
2829 persuaded to hold so. Auctions may be the best way of maximizing
2830 revenue but revenue maximization may not always be the best way to
2831 subserve public good. “Common good†is the sole guiding factor under
2832 Article 39(b) for distribution of natural resources. It is the
2833 touchstone of testing whether any policy subserves the “common goodâ€
2834 and if it does, irrespective of the means adopted, it is clearly in
2835 accordance with the principle enshrined in Article 39(b).
2836
2837
2838
2839
2840 117. In The State of Karnataka and Anr. Vs. Shri Ranganatha Reddy and
2841 Anr.[51], Justice Krishna Iyer observed that keeping in mind the
2842 purpose of an Article like 39(b), a broad rather than a narrow meaning
2843 should be given to the words of that Article. In his inimitable
2844 style, his Lordship opined thus:
2845
2846 “83. Two conclusions strike us as quintessential. Part IV, especially
2847 Article 39(b) and (c), is a futuristic mandate to the state with a
2848 message of transformation of the economic and social order. Firstly,
2849 such change calls for collaborative effort from all the legal
2850 institutions of the system: the legislature, the judiciary and the
2851 administrative machinery. Secondly and consequentially, loyalty to the
2852 high purpose of the Constitution, viz., social and economic justice in
2853 the context of material want and utter inequalities on a massive
2854 scale, compels the court to ascribe expansive meaning to the pregnant
2855 words used with hopeful foresight, not to circumscribe their
2856 connotation into contradiction of the objectives inspiring the
2857 provision. To be Pharisaic towards the Constitution through
2858 ritualistic construction is to weaken the social-spiritual thrust of
2859 the founding fathers' dynamic faith.â€
2860
2861
2862
2863
2864
2865
2866
2867 118. In the case of Bennett Coleman & Co. and Ors. Vs. Union of India and
2868 Ors[52]., it has been held by this Court that “the only norm which the
2869 Constitution furnishes for distribution of material resources of the
2870 community is elastic norm of common good.†Thus “common good†is a
2871 norm in Article 39(b) whose applicability was considered by this Court
2872 on the facts of the case. Even in that case, this Court did not evolve
2873 economic criteria of its own to achieve the goal of “common good†in
2874 Article 39(b), which is part of the Directive Principles.
2875
2876
2877 119. The norm of “common good†has to be understood and appreciated in a
2878 holistic manner. It is obvious that the manner in which the common
2879 good is best subserved is not a matter that can be measured by any
2880 constitutional yardstick - it would depend on the economic and
2881 political philosophy of the government. Revenue maximization is not
2882 the only way in which the common good can be subserved. Where revenue
2883 maximization is the object of a policy, being considered qua that
2884 resource at that point of time to be the best way to subserve the
2885 common good, auction would be one of the preferable methods, though
2886 not the only method. Where revenue maximization is not the object of a
2887 policy of distribution, the question of auction would not arise.
2888 Revenue considerations may assume secondary consideration to
2889 developmental considerations.
2890
2891
2892
2893 120. Therefore, in conclusion, the submission that the mandate of Article
2894 14 is that any disposal of a natural resource for commercial use must
2895 be for revenue maximization, and thus by auction, is based neither on
2896 law nor on logic. There is no constitutional imperative in the matter
2897 of economic policies- Article 14 does not pre-define any economic
2898 policy as a constitutional mandate. Even the mandate of 39(b) imposes
2899 no restrictions on the means adopted to subserve the public good and
2900 uses the broad term ‘distribution’, suggesting that the methodology of
2901 distribution is not fixed. Economic logic establishes that
2902 alienation/allocation of natural resources to the highest bidder may
2903 not necessarily be the only way to subserve the common good, and at
2904 times, may run counter to public good. Hence, it needs little emphasis
2905 that disposal of all natural resources through auctions is clearly not
2906 a constitutional mandate.
2907
2908
2909
2910Legitimate Deviations from Auction
2911
2912 121. As a result, this Court has, on a number of occasions, delivered
2913 judgments directing means for disposal of natural resources other than
2914 auction for different resources in different circumstances. It would
2915 be profitable to refer to a few cases and appreciate the reasons this
2916 Court has adopted for deviating from the method of auction.
2917
2918
2919
2920 122. In M/s Kasturi Lal Lakshmi Reddy Vs. State of Jammu & Kashmir &
2921 Anr.[53], while comparing the efficacy of auction in promoting a
2922 domestic industry, P.N. Bhagwati, J. observed: -
2923
2924 “22. …If the State were giving tapping contract simpliciter there
2925 can be no doubt that the State would have to auction or invite
2926 tenders for securing the highest price, subject, of course, to any
2927 other relevant overriding considerations of public weal or interest,
2928 but in a case like this where the State is allocating resources such
2929 as water, power, raw materials etc. for the purpose of encouraging
2930 setting up of industries within the State, we do not think the State
2931 is bound to advertise and tell the people that it wants a particular
2932 industry to be set up within the State and invite those interested
2933 to come up with proposals for the purpose. The State may choose to
2934 do so, if it thinks fit and in a given situation, it may even turn
2935 out to be advantageous for the State to do so, but if any private
2936 party comes before the State and offers to set up an industry, the
2937 State would not be committing breach of any constitutional or legal
2938 obligation if it negotiates with such party and agrees to provide
2939 resources and other facilities for the purpose of setting up the
2940 industry. The State is not obliged to tell such party: “Please wait
2941 I will first advertise, wee whether any other offers are forthcoming
2942 and then after considering all offers, decide whether I should let
2943 you set up the industryâ€...The State must be free in such a case to
2944 negotiate with a private entrepreneur with a view to inducing him to
2945 set up an industry within the State and if the State enters into a
2946 contract with such entrepreneur for providing resources and other
2947 facilities for setting up an industry, the contract cannot be
2948 assailed as invalid so long as the State has acted bona fide,
2949 reasonably and in public interest. If the terms and conditions of
2950 the contract or the surrounding circumstances show that the State
2951 has acted mala fide or out of improper or corrupt motive or in order
2952 to promote the private interests of someone at the cost of the
2953 State, the court will undoubtedly interfere and strike down State
2954 action as arbitrary, unreasonable or contrary to public interest.
2955 But so long as the State action is bona fide and reasonable, the
2956 court will not interfere merely on the ground that no advertisement
2957 was given or publicity made or tenders invited.â€
2958
2959
2960
2961 123. In Sachidanand Pandey (supra) after noticing Kasturi Lal’s case
2962 (supra), it was concluded as under:
2963
2964 “40. On a consideration of the relevant cases cited at the Bar the
2965 following propositions may be taken as well established: State-
2966 owned or public-owned property is not to be dealt with at the
2967 absolute discretion of the executive. Certain precepts and
2968 principles have to be observed. Public interest is the paramount
2969 consideration. One of the methods of securing the public interest,
2970 when it is considered necessary to dispose of a property, is to
2971 sell the property by public auction or by inviting tenders. Though
2972 that is the ordinary rule, it is not an invariable rule. There may
2973 be situations where there are compelling reasons necessitating
2974 departure from the rule but then the reasons for the departure must
2975 be rational and should not be suggestive of discrimination.
2976 Appearance of public justice is as important as doing justice.
2977 Nothing should be done which gives an appearance of bias, jobbery
2978 or nepotism.â€
2979
2980 124. In Haji T.M. Hassan Rawther Vs. Kerala Financial Corpn.[54], after an
2981 exhaustive review of the law including the decisions in Kasturi Lal
2982 (supra) and Sachidanand Pandey (supra), it was held that public
2983 disposal of State owned properties is not the only rule. It was,
2984 inter-alia, observed that:
2985
2986 “14. The public property owned by the State or by any instrumentality
2987 of the State should be generally sold by public auction or by inviting
2988 tenders. This Court has been insisting upon that rule, not only to get
2989 the highest price for the property but also to ensure fairness in the
2990 activities of the State and public authorities. They should
2991 undoubtedly act fairly. Their actions should be legitimate. Their
2992 dealings should be aboveboard. Their transactions should be without
2993 aversion or affection. Nothing should be suggestive of discrimination.
2994 Nothing should be done by them which gives an impression of bias,
2995 favouritism or nepotism. Ordinarily these factors would be absent if
2996 the matter is brought to public auction or sale by tenders. That is
2997 why the court repeatedly stated and reiterated that the State-owned
2998 properties are required to be disposed of publicly. But that is not
2999 the only rule. As O. Chinnappa Reddy, J. observed “that though that is
3000 the ordinary rule, it is not an invariable ruleâ€. There may be
3001 situations necessitating departure from the rule, but then such
3002 instances must be justified by compulsions and not by compromise. It
3003 must be justified by compelling reasons and not by just convenience.â€
3004
3005
3006Here, the Court added to the previous decisions and said that a blithe
3007deviation from public disposal of resources would not be tolerable; such a
3008deviation must be justified by compelling reasons and not by just
3009convenience.
3010
3011 125. In M.P. Oil Extraction and Anr. Vs. State of M.P. & Ors.[55], this
3012 Court held as follows:
3013 “45. Although to ensure fair play and transparency in State action,
3014 distribution of largesse by inviting open tenders or by public auction
3015 is desirable, it cannot be held that in no case distribution of such
3016 largesse by negotiation is permissible. In the instant case, as a
3017 policy decision protective measure by entering into agreements with
3018 selected industrial units for assured supply of sal seeds at
3019 concessional rate has been taken by the Government. The rate of
3020 royalty has also been fixed on some accepted principle of pricing
3021 formula as will be indicated hereafter. Hence, distribution or
3022 allotment of sal seeds at the determined royalty to the respondents
3023 and other units covered by the agreements cannot be assailed. It is to
3024 be appreciated that in this case, distribution by public auction or by
3025 open tender may not achieve the purpose of the policy of protective
3026 measure by way of supply of sal seeds at concessional rate of royalty
3027 to the industrial units covered by the agreements on being selected on
3028 valid and objective considerations.â€
3029
3030 126. In Netai Bag & Ors. Vs. State of W.B. & Ors.[56], this Court observed
3031 that non- floating of tenders or not holding of public auction would,
3032 not in all cases, be deemed to be the result of the exercise of the
3033 executive power in an arbitrary manner. It was stated:
3034 “19. …There cannot be any dispute with the proposition that generally
3035 when any State land is intended to be transferred or the State
3036 largesse decided to be conferred, resort should be had to public
3037 auction or transfer by way of inviting tenders from the people. That
3038 would be a sure method of guaranteeing compliance with the mandate of
3039 Article 14 of the Constitution. Non-floating of tenders or not holding
3040 of public auction would not in all cases be deemed to be the result of
3041 the exercise of the executive power in an arbitrary manner. Making an
3042 exception to the general rule could be justified by the State
3043 executive, if challenged in appropriate proceedings. The
3044 constitutional courts cannot be expected to presume the alleged
3045 irregularities, illegalities or unconstitutionality nor the courts can
3046 substitute their opinion for the bona fide opinion of the State
3047 executive. The courts are not concerned with the ultimate decision but
3048 only with the fairness of the decision-making process.
3049
3050
3051This Court once again pointed out that there can be exceptions from
3052auction; the ultimate test is only that of fairness of the decision making
3053process and compliance with Article 14 of the Constitution.
3054
3055 127. In M & T Consultants, Secunderabad Vs. S.Y. Nawab[57], this Court
3056 again reiterated that non- floating of tenders does not always lead to
3057 the conclusion that the exercise of the power is arbitrary:
3058 “17. A careful and dispassionate assessment and consideration of the
3059 materials placed on record does not leave any reasonable impression,
3060 on the peculiar facts and circumstances of this case, that anything
3061 obnoxious which requires either public criticism or condemnation by
3062 courts of law had taken place. It is by now well settled that non-
3063 floating of tenders or absence of public auction or invitation alone
3064 is no sufficient reason to castigate the move or an action of a
3065 public authority as either arbitrary or unreasonable or amounting to
3066 mala fide or improper exercise or improper abuse of power by the
3067 authority concerned. Courts have always leaned in favour of
3068 sufficient latitude being left with the authorities to adopt their
3069 own techniques of management of projects with concomitant economic
3070 expediencies depending upon the exigencies of a situation guided by
3071 appropriate financial policy in the best interests of the authority
3072 motivated by public interest as well in undertaking such ventures.â€
3073
3074
3075
3076
3077 128. In Villianur Iyarkkai Padukappu Maiyam Vs. Union of India & Ors.[58],
3078 a three Judge Bench of this Court was concerned with the development
3079 of the Port of Pondicherry where a contractor had been selected
3080 without floating a tender or holding public auction. It was held as
3081 under:
3082 “164. The plea raised by the learned counsel for the appellants
3083 that the Government of Pondicherry was arbitrary and unreasonable
3084 in switching the whole public tender process into a system of
3085 personal selection and, therefore, the appeals should be accepted,
3086 is devoid of merits. It is well settled that non-floating of
3087 tenders or not holding of public auction would not in all cases be
3088 deemed to be the result of the exercise of the executive power in
3089 an arbitrary manner.
3090
3091
3092 171. In a case like this where the State is allocating resources
3093 such as water, power, raw materials, etc. for the purpose of
3094 encouraging development of the port, this Court does not think that
3095 the State is bound to advertise and tell the people that it wants
3096 development of the port in a particular manner and invite those
3097 interested to come up with proposals for the purpose. The State may
3098 choose to do so if it thinks fit and in a given situation it may
3099 turn out to be advantageous for the State to do so, but if any
3100 private party comes before the State and offers to develop the
3101 port, the State would not be committing breach of any
3102 constitutional obligation if it negotiates with such a party and
3103 agrees to provide resources and other facilities for the purpose of
3104 development of the port.â€
3105
3106
3107 129. Hence, it is manifest that there is no constitutional mandate in
3108 favour of auction under Article 14. The Government has repeatedly
3109 deviated from the course of auction and this Court has repeatedly
3110 upheld such actions. The judiciary tests such deviations on the
3111 limited scope of arbitrariness and fairness under Article 14 and its
3112 role is limited to that extent. Essentially whenever the object of
3113 policy is anything but revenue maximization, the Executive is seen to
3114 adopt methods other than auction.
3115
3116
3117
3118 130. A fortiori, besides legal logic, mandatory auction may be contrary to
3119 economic logic as well. Different resources may require different
3120 treatment. Very often, exploration and exploitation contracts are
3121 bundled together due to the requirement of heavy capital in the
3122 discovery of natural resources. A concern would risk undertaking such
3123 exploration and incur heavy costs only if it was assured utilization
3124 of the resource discovered; a prudent business venture, would not like
3125 to incur the high costs involved in exploration activities and then
3126 compete for that resource in an open auction. The logic is similar to
3127 that applied in patents. Firms are given incentives to invest in
3128 research and development with the promise of exclusive access to the
3129 market for the sale of that invention. Such an approach is
3130 economically and legally sound and sometimes necessary to spur
3131 research and development. Similarly, bundling exploration and
3132 exploitation contracts may be necessary to spur growth in a specific
3133 industry.
3134
3135
3136
3137 131. Similar deviation from auction cannot be ruled out when the object of
3138 a State policy is to promote domestic development of an industry, like
3139 in Kasturi Lal’s case, discussed above. However, these examples are
3140 purely illustrative in order to demonstrate that auction cannot be the
3141 sole criteria for alienation of all natural resources.
3142
3143Potential of Abuse
3144 132. It was also argued that even if the method of auction is not a mandate
3145 under Article 14, it must be the only permissible method, due to the
3146 susceptibility of other methods to abuse. This argument, in our view,
3147 is contrary to an established position of law on the subject cemented
3148 through a catena of decisions.
3149
3150
3151
3152
3153 133. In R.K. Garg Vs. Union of India & Ors.[59], Justice P. N. Bhagwati,
3154 speaking for a Constitution Bench of five learned Judges, held:
3155
3156
3157 “8.…The Court must always remember that “legislation is directed to
3158 practical problems, that the economic mechanism is highly sensitive
3159 and complex, that many problems are singular and contingent, that laws
3160 are not abstract propositions and do not relate to abstract units and
3161 are not to be measured by abstract symmetryâ€; “that exact wisdom and
3162 nice adaption of remedy are not always possible†and that “judgment is
3163 largely a prophecy based on meager and uninterpreted experienceâ€.
3164 Every legislation particularly in economic matters is essentially
3165 empiric and it is based on experimentation or what one may call trial
3166 and error method and therefore it cannot provide for all possible
3167 situations or anticipate all possible abuses. There may be crudities
3168 and inequities in complicated experimental economic legislation but on
3169 that account alone it cannot be struck down as invalid. The courts
3170 cannot, as pointed out by the United States Supreme Court in Secretary
3171 of Agriculture v. Central Reig Refining Company[60] be converted into
3172 tribunals for relief from such crudities and inequities. There may
3173 even be possibilities of abuse, but that too cannot of itself be a
3174 ground for invalidating the legislation, because it is not possible
3175 for any legislature to anticipate as if by some divine prescience,
3176 distortions and abuses of its legislation which may be made by those
3177 subject to its provisions and to provide against such distortions and
3178 abuses. Indeed, howsoever great may be the care bestowed on its
3179 framing, it is difficult to conceive of a legislation which is not
3180 capable of being abused by perverted human ingenuity. The Court must
3181 therefore adjudge the constitutionality of such legislation by the
3182 generality of its provisions and not by its crudities or inequities or
3183 by the possibilities of abuse of any of its provisions. If any
3184 crudities, inequities or possibilities of abuse come to light, the
3185 legislature can always step in and enact suitable amendatory
3186 legislation. That is the essence of pragmatic approach which must
3187 guide and inspire the legislature in dealing with complex economic
3188 issues.â€
3189
3190
3191
3192 134. Then again, in D. K. Trivedi & Sons & Ors. Vs. State of Gujarat &
3193 Ors.[61], while upholding the constitutional validity of Section 15(1)
3194 of the MMRD Act, this Court explained the principle in the following
3195 words:
3196
3197 “50. Where a statute confers discretionary powers upon the executive
3198 or an administrative authority, the validity or constitutionality of
3199 such power cannot be judged on the assumption that the executive or
3200 such authority will act in an arbitrary manner in the exercise of the
3201 discretion conferred upon it. If the executive or the administrative
3202 authority acts in an arbitrary manner, its action would be bad in law
3203 and liable to be struck down by the courts but the possibility of
3204 abuse of power or arbitrary exercise of power cannot invalidate the
3205 statute conferring the power or the power which has been conferred by
3206 it.â€
3207
3208
3209
3210
3211
3212
3213
3214 135. Therefore, a potential for abuse cannot be the basis for striking down
3215 a method as ultra vires the Constitution. It is the actual abuse
3216 itself that must be brought before the Court for being tested on the
3217 anvil of constitutional provisions. In fact, it may be said that even
3218 auction has a potential of abuse, like any other method of allocation,
3219 but that cannot be the basis of declaring it as an unconstitutional
3220 methodology either. These drawbacks include cartelization, “winners
3221 curse†(the phenomenon by which a bidder bids a higher, unrealistic
3222 and unexecutable price just to surpass the competition; or where a
3223 bidder, in case of multiple auctions, bids for all the resources and
3224 ends up winning licenses for exploitation of more resources than he
3225 can pragmatically execute), etc. However, all the same, auction cannot
3226 be called ultra vires for the said reasons and continues to be an
3227 attractive and preferred means of disposal of natural resources
3228 especially when revenue maximization is a priority. Therefore,
3229 neither auction, nor any other method of disposal can be held ultra
3230 vires the Constitution, merely because of a potential abuse.
3231
3232
3233
3234Judicial Review of Policy Decisions
3235
3236 136. The learned Attorney General also argued that dictating a method of
3237 distribution for natural resources violates the age old established
3238 principle of non-interference by the judiciary in policy matters. Even
3239 though the contours of the power of judicial review of policy
3240 decisions has become a trite subject, as the Courts have repeatedly
3241 delivered opinions on it, we wish to reiterate some of the principles
3242 in brief, especially with regard to economic policy choices and
3243 pricing.
3244
3245
3246
3247
3248 137. One of the earliest pronouncements on the subject came from this Court
3249 in Rustom Cavasjee Cooper Vs. Union of India[62] (commonly known as
3250 “Bank Nationalization Caseâ€) wherein this Court held that it is not
3251 the forum where conflicting policy claims may be debated; it is only
3252 required to adjudicate the legality of a measure which has little to
3253 do with relative merits of different political and economic theories.
3254 The Court observed:
3255
3256
3257
3258
3259 “63. This Court is not the forum in which these conflicting claims may
3260 be debated. Whether there is a genuine need for banking facility in
3261 the rural sector, whether certain classes of the community are
3262 deprived of the benefit of the resources of the banking industry,
3263 whether administration by the Government of the commercial banking
3264 sector will not prove beneficial to the community and will lead to
3265 rigidity in the administration, whether the Government administration
3266 will eschew the profit-motive, and even if it be eschewed, there will
3267 accrue substantial benefits to the public, whether an undue accent on
3268 banking as a means of social regeneration, especially in the backward
3269 areas, is a doctrinaire approach to a rational order of priorities for
3270 attaining the national objectives enshrined in our Constitution, and
3271 whether the policy followed by the Government in office or the policy
3272 propounded by its opponents may reasonably attain the national
3273 objectives are matters which have little relevance in determining the
3274 legality of the measure. It is again not for this Court to consider
3275 the relative merits of the different political theories or economic
3276 policies. The Parliament has under Entry 45, List I the power to
3277 legislate in respect of banking and other commercial activities of the
3278 named banks necessarily incidental thereto: it has the power to
3279 legislate for acquiring the undertaking of the named banks under Entry
3280 42, List III. Whether by the exercise of the power vested in the
3281 Reserve Bank under the pre-existing laws, results could be achieved
3282 which it is the object of the Act to achieve, is, in our judgment, not
3283 relevant in considering whether the Act amounts to abuse of
3284 legislative power. This Court has the power to strike down a law on
3285 the ground of want of authority, but the Court will not sit in appeal
3286 over the policy of the Parliament in enacting a law. The Court cannot
3287 find fault with the Act merely on the ground that it is inadvisable to
3288 take over the undertaking of banks which, it is said by the
3289 petitioner, by thrift and efficient management had set up an
3290 impressive and efficient business organization serving large sectors
3291 of industry.â€
3292
3293
3294
3295
3296 138. In R.K. Garg (supra), this Court even observed that greater judicial
3297 deference must be shown towards a law relating to economic activities
3298 due to the complexity of economic problems and their fulfillment
3299 through a methodology of trial and error. As noted above, it was also
3300 clarified that the fact that an economic legislation may be troubled
3301 by crudities, inequities, uncertainties or the possibility of abuse
3302 cannot be the basis for striking it down. The following observations
3303 which refer to a couple of American Supreme Court decisions are a
3304 limpid enunciation on the subject :
3305
3306 “8. Another rule of equal importance is that laws relating to economic
3307 activities should be viewed with greater latitude than laws touching
3308 civil rights such as freedom of speech, religion etc. It has been said
3309 by no less a person than Holmes, J., that the legislature should be
3310 allowed some play in the joints, because it has to deal with complex
3311 problems which do not admit of solution through any doctrinaire or
3312 strait-jacket formula and this is particularly true in case of
3313 legislation dealing with economic matters, where, having regard to the
3314 nature of the problems required to be dealt with, greater play in the
3315 joints has to be allowed to the legislature. The court should feel
3316 more inclined to give judicial deference to legislative judgment in
3317 the field of economic regulation than in other areas where fundamental
3318 human rights are involved. Nowhere has this admonition been more
3319 felicitously expressed than in Morey v. Doud[63] where Frankfurter,
3320 J., said in his inimitable style:
3321
3322
3323 ‘In the utilities, tax and economic regulation cases, there are
3324 good reasons for judicial self-restraint if not judicial
3325 deference to legislative judgment. The legislature after all has
3326 the affirmative responsibility. The courts have only the power
3327 to destroy, not to reconstruct. When these are added to the
3328 complexity of economic regulation, the uncertainty, the
3329 liability to error, the bewildering conflict of the experts, and
3330 the number of times the judges have been overruled by events —
3331 self-limitation can be seen to be the path to judicial wisdom
3332 and institutional prestige and stability’...â€
3333
3334
3335
3336
3337 139. In Premium Granites & Anr. Vs. State of T.N. & Ors.[64] this Court
3338 clarified that it is the validity of a law and not its efficacy that
3339 can be challenged:
3340
3341 “54. It is not the domain of the court to embark upon unchartered
3342 ocean of public policy in an exercise to consider as to whether a
3343 particular public policy is wise or a better public policy can be
3344 evolved. Such exercise must be left to the discretion of the executive
3345 and legislative authorities as the case may be. The court is called
3346 upon to consider the validity of a public policy only when a challenge
3347 is made that such policy decision infringes fundamental rights
3348 guaranteed by the Constitution of India or any other statutory
3349 right...â€
3350
3351
3352
3353
3354
3355
3356
3357 140. In Delhi Science Forum & Ors. Vs. Union of India & Anr.[65] a Bench of
3358 three learned Judges of this Court, while rejecting a claim against
3359 the opening up of the telecom sector reiterated that the forum for
3360 debate and discourse over the merits and demerits of a policy is the
3361 Parliament. It restated that the services of this Court are not sought
3362 till the legality of the policy is disputed, and further, that no
3363 direction can be given or be expected from the courts, unless while
3364 implementing such policies, there is violation or infringement of any
3365 of the constitutional or statutory provisions. It held thus:
3366
3367 “7. What has been said in respect of legislations is applicable even
3368 in respect of policies which have been adopted by Parliament. They
3369 cannot be tested in Court of Law. The courts cannot express their
3370 opinion as to whether at a particular juncture or under a particular
3371 situation prevailing in the country any such national policy should
3372 have been adopted or not. There may be views and views, opinions and
3373 opinions which may be shared and believed by citizens of the country
3374 including the representatives of the people in Parliament. But that
3375 has to be sorted out in Parliament which has to approve such
3376 policies…â€
3377
3378
3379
3380 141. In BALCO Employees’ Union (Regd.) Vs. Union of India & Ors.[66],
3381 this Court further pointed out that the Court ought to stay away from
3382 judicial review of efficacy of policy matters, not only because the
3383 same is beyond its jurisdiction, but also because it lacks the
3384 necessary expertise required for such a task. Affirming the previous
3385 views of this Court, the Court observed that while dealing with
3386 economic legislations, the Courts, while not jettisoning its
3387 jurisdiction to curb arbitrary action or unconstitutional legislation,
3388 should interfere only in those cases where the view reflected in the
3389 legislation is not possible to be taken at all. The Court went on to
3390 emphasize that unless the economic decision, based on economic
3391 expediencies, is demonstrated to be so violative of constitutional or
3392 legal limits on power or so abhorrent to reason, that the courts would
3393 decline to interfere.
3394
3395
3396
3397 142. In BALCO (supra), the Court took notice of the judgment in Peerless
3398 General Finance and Investment Co. Ltd. & Anr. Vs. Reserve Bank of
3399 India[67] and observed that some matters like price fixation are based
3400 on such uncertainties and dynamics that even experts face difficulty
3401 in making correct projections, making it all the more necessary for
3402 this Court to exercise non- interference:
3403 “31. The function of the Court is to see that lawful authority is not
3404 abused but not to appropriate to itself the task entrusted to that
3405 authority. It is well settled that a public body invested with
3406 statutory powers must take care not to exceed or abuse its power. It
3407 must keep within the limits of the authority committed to it. It must
3408 act in good faith and it must act reasonably. Courts are not to
3409 interfere with economic policy which is the function of experts. It is
3410 not the function of the courts to sit in judgment over matters of
3411 economic policy and it must necessarily be left to the expert bodies.
3412 In such matters even experts can seriously and doubtlessly differ.
3413 Courts cannot be expected to decide them without even the aid of
3414 experts.â€
3415 143. In an earlier case in M/s Prag Ice & Oil Mills & Anr. Vs. Union of
3416 India[68], this Court had observed as under: (SCC p. 478, Para 24)
3417 “We do not think that it is the function of this Court or of any court
3418 to sit in judgment over such matters of economic policy as must
3419 necessarily be left to the government of the day to decide. Many of
3420 them, as a measure of price fixation must necessarily be, are matters
3421 of prediction of ultimate results on which even experts can seriously
3422 err and doubtlessly by differ. Courts can certainly not be expected to
3423 decide them without even the aid of experts.â€
3424
3425
3426
3427
3428 144. In State of Madhya Pradesh Vs. Narmada Bachao Andolan & Anr.[69], this
3429 Court said that the judiciary cannot engage in an exercise of
3430 comparative analysis over the fairness, logical or scientific basis,
3431 or wisdom of a policy. It held that the Court cannot strike down a
3432 policy decision taken by the Government merely because it feels that
3433 another decision would have been fairer, or more scientific or
3434 logical, or wiser. The wisdom and advisability of the policies are
3435 ordinarily not amenable to judicial review unless the policies are
3436 contrary to statutory or constitutional provisions or arbitrary or
3437 irrational or an abuse of power.
3438
3439
3440 145. Mr. Subramanian Swamy also brought to our notice a Report on
3441 Allocation of Natural Resources, prepared by a Committee, chaired by
3442 Mr. Ashok Chawla (hereinafter referred to as the “Chawla Committee
3443 Reportâ€), which has produced a copious conceptual framework for the
3444 Government of India on the allocation and pricing of scarce natural
3445 resources viz. coal, minerals, petroleum, natural gas, spectrum,
3446 forests, land and water. He averred to observations of the report in
3447 favour of auction as a means of disposal. However, since the opinion
3448 rendered in the Chawla Committee Report is pending acceptance by the
3449 Government, it would be inappropriate for us to place judicial
3450 reliance on it. Besides, the Report conducts an economic, and not
3451 legal, analysis of the means of disposal of natural resources. The
3452 purpose of this Reference would be best served if this Court gave a
3453 constitutional answer rather than economic one.
3454
3455
3456
3457
3458
3459
3460 146. To summarize in the context of the present Reference, it needs to be
3461 emphasized that this Court cannot conduct a comparative study of the
3462 various methods of distribution of natural resources and suggest the
3463 most efficacious mode, if there is one universal efficacious method in
3464 the first place. It respects the mandate and wisdom of the executive
3465 for such matters. The methodology pertaining to disposal of natural
3466 resources is clearly an economic policy. It entails intricate economic
3467 choices and the Court lacks the necessary expertise to make them. As
3468 has been repeatedly said, it cannot, and shall not, be the endeavour
3469 of this Court to evaluate the efficacy of auction vis-Ã -vis other
3470 methods of disposal of natural resources. The Court cannot mandate one
3471 method to be followed in all facts and circumstances. Therefore,
3472 auction, an economic choice of disposal of natural resources, is not a
3473 constitutional mandate. We may, however, hasten to add that the Court
3474 can test the legality and constitutionality of these methods. When
3475 questioned, the Courts are entitled to analyse the legal validity of
3476 different means of distribution and give a constitutional answer as to
3477 which methods are ultra vires and intra vires the provisions of the
3478 Constitution. Nevertheless, it cannot and will not compare which
3479 policy is fairer than the other, but, if a policy or law is patently
3480 unfair to the extent that it falls foul of the fairness requirement of
3481 Article 14 of the Constitution, the Court would not hesitate in
3482 striking it down.
3483
3484
3485
3486
3487
3488 147. Finally, market price, in economics, is an index of the value that a
3489 market prescribes to a good. However, this valuation is a function of
3490 several dynamic variables; it is a science and not a law. Auction is
3491 just one of the several price discovery mechanisms. Since multiple
3492 variables are involved in such valuations, auction or any other form
3493 of competitive bidding, cannot constitute even an economic mandate,
3494 much less a constitutional mandate.
3495
3496
3497
3498 148. In our opinion, auction despite being a more preferable method of
3499 alienation/allotment of natural resources, cannot be held to be a
3500 constitutional requirement or limitation for alienation of all natural
3501 resources and therefore, every method other than auction cannot be
3502 struck down as ultra-vires the constitutional mandate.
3503
3504
3505
3506 149. Regard being had to the aforesaid precepts, we have opined that
3507 auction as a mode cannot be conferred the status of a constitutional
3508 principle. Alienation of natural resources is a policy decision, and
3509 the means adopted for the same are thus, executive prerogatives.
3510 However, when such a policy decision is not backed by a social or
3511 welfare purpose, and precious and scarce natural resources are
3512 alienated for commercial pursuits of profit maximizing private
3513 entrepreneurs, adoption of means other than those that are competitive
3514 and maximize revenue may be arbitrary and face the wrath of Article 14
3515 of the Constitution. Hence, rather than prescribing or proscribing a
3516 method, we believe, a judicial scrutiny of methods of disposal of
3517 natural resources should depend on the facts and circumstances of each
3518 case, in consonance with the principles which we have culled out
3519 above. Failing which, the Court, in exercise of power of judicial
3520 review, shall term the executive action as arbitrary, unfair,
3521 unreasonable and capricious due to its antimony with Article 14 of the
3522 Constitution.
3523
3524
3525
3526
3527 150. In conclusion, our answer to the first set of five questions is that
3528 auctions are not the only permissible method for disposal of all
3529 natural resources across all sectors and in all circumstances.
3530
3531
3532
3533
3534 151. As regards the remaining questions, we feel that answer to these
3535 questions would have a direct bearing on the mode of alienation of
3536 Spectrum and therefore, in light of the statement by the learned
3537 Attorney General that the Government is not questioning the
3538 correctness of judgment in the 2G Case, we respectfully decline to
3539 answer these questions. The Presidential Reference is answered
3540 accordingly.
3541
3542
3543
3544 152. This opinion shall be transmitted to the President in accordance with
3545 the procedure prescribed in Part V of the Supreme Court Rules, 1966.
3546
3547
3548
3549 ……………………………………...
3550
3551 (S.H. KAPADIA, CJI)
3552
3553
3554
3555
3556
3557
3558 ……………………………………...
3559
3560 (D.K. JAIN, J.)
3561
3562
3563
3564
3565
3566
3567
3568
3569
3570 ……………………………………...
3571
3572 (DIPAK MISRA, J.)
3573
3574
3575
3576
3577
3578
3579
3580 ……………………………………...
3581
3582 (RANJAN GOGOI, J.)
3583
3584NEW DELHI;
3585
3586SEPTEMBER 27, 2012.
3587
3588ARS/RS
3589
3590
3591
3592
3593 IN THE SUPREME COURT OF INDIA
3594 ADVISORY JURISDICTION
3595 SPECIAL REFERENCE NO.1 OF 2012
3596 IN THE MATTER OF:
3597 Special Reference under Article 143(1)
3598 Of the Constitution of India
3599
3600
3601 O P I N I O N
3602JAGDISH SINGH KHEHAR, J.
36031. I have had the privilege of perusing the opinion rendered by my
3604esteemed brother, D.K. Jain, J. Every bit of the opinion (which shall
3605hereinafter be referred to by me, as the “main opinionâ€) is based on
3606settled propositions of law declared by this Court. There can, therefore,
3607be no question of any disagreement therewith. I fully endorse the opinion
3608expressed therein.
36092. The first question posed in the Presidential reference, is in fact
3610the reason, for my having to record, some other nuances on the subject
3611whereof advice has been sought. The first question in the Presidential
3612reference requires the Supreme Court to tender advice on, “Whether the only
3613permissible method for disposal of all natural resources across all sectors
3614and in all circumstances, is by the conduct of auctions?â€. It is of utmost
3615importance to understand, the tenor of the first question in the
3616Presidential reference. Take for instance a hypothetical situation where,
3617the legality of 100 instances of disposal of different types of natural
3618resources is taken up for consideration. If the first question is taken in
3619its literal sense, as to whether the method of disposal of all natural
3620resources in all circumstances is by auction alone, then, even if 99 out of
3621the aforesaid 100 different natural resources are such, which can only be
3622disposed of by way of auction, the answer to the first question would still
3623be in the negative. This answer in the negative would give the erroneous
3624impression, that it is not necessary to dispose of natural resources by way
3625of auction. Surely, the Presidential reference has not been made, to seek
3626such an innocuous advice. The instant reference has been made despite the
3627Central Government being alive to the fact, that there are natural
3628resources which can only be disposed of by way of auction. A mining lease
3629for coal under Section 11A of the Mines and Minerals (Development and
3630Regulation) Act, 1957 can be granted, only by way of selection through
3631auction by competitive bidding. Furthermore, the learned Attorney General
3632for India informed us, about a conscious decision having been taken by the
3633Central Government to henceforth allot spectrum only through competitive
3634bidding by way of auction. Such instances can be multiplied. It is
3635therefore obvious, that Government is alive to the fact, that disposal of
3636some natural resources have to be made only by auction. If that is so, the
3637first question in the reference does not seek a literal response. The
3638first question must be understood to seek this Court’s opinion on whether
3639there are circumstances in which natural resources ought to be disposed of
3640only by auction. Tendering an opinion, without a response to this facet of
3641the matter, would not make the seeker of advice, any wiser. It is this
3642aspect alone, which will be the main subject of focus of my instant
3643opinion.
36443. Before venturing into the area of consideration expressed in the
3645foregoing paragraph, it is necessary to record, that there was extensive
3646debate during the course of hearing, on whether, maximization of revenue
3647must be the sole permissible consideration, for disposal of all natural
3648resources, across all sectors and in all circumstances. During the course
3649of this debate, the learned Attorney General for India acknowledged, that
3650auction by way of competitive bidding, was certainly an indisputable means,
3651by which maximization of revenue returns is assured. It is not as if, one
3652would like to bind the learned Attorney General to the acquiesced
3653proposition. During the course of the days and weeks of erudite debate,
3654learned counsel emphasized, that disposal of assets by processes of tender,
3655tender-cum-auction and auction, could assure maximization of revenue
3656returns. Of course, there are a large variety of tender and auction
3657processes, each one with its own nuances. And we were informed, that a
3658rightful choice, would assure maximization of revenue returns. The term
3659“auction†expressed in my instant opinion, may therefore be read as a means
3660to maximize revenue returns, irrespective of whether the means adopted
3661should technically and correctly be described as tender, tender-cum-
3662auction, or auction.
36634. The concept of equality before the law and equal protection of the
3664laws, emerges from the fundamental right expressed in Article 14 of the
3665Constitution of India. Equality is a definite concept. The variation in
3666its understanding may at best have reference to the maturity and evolution
3667of the nation’s thought. To start with, breach of equality was a plea
3668advanced by individuals claiming fair treatment. Challenges were raised
3669also on account of discriminatory treatment. Equality was sought by those
3670more meritorious, when benefits were bestowed on those with lesser caliber.
3671 Gradually, judicial intervention came to be sought for equitable
3672treatment, even for a section of the society put together. A jurisdiction,
3673which in due course, came to be described as public interest litigation. It
3674all started with a demand for the basic rights for respectable human
3675existence. Over the years, the concept of determination of societal
3676rights, has traversed into different directions and avenues. So much so,
3677that now rights in equity, sometimes even present situations of conflict
3678between individual rights and societal rights. The present adjudication
3679can be stated to be a dispute of such nature. In a maturing society,
3680individual rights and plural rights have to be balanced, so that the
3681oscillating pendulum of rights, fairly and equally, recognizes their
3682respective parameters. For a country like India, the pendulum must be
3683understood to balance the rights of one citizen on the one side, and
3684124,14,91,960 (the present estimated population of India) citizens of the
3685country on the other. The true effect of the Article 14 of the
3686Constitution of India is to provide equality before the law and equal
3687protection of the laws not only with reference to individual rights, but
3688also by ensuring that its citizens on the other side of the balance are
3689likewise not deprived of their right to equality before the law, and their
3690right to equal protection of the laws. An individual citizen cannot be a
3691beneficiary, at the cost of the country (the remaining 124,14,91,960
3692citizens) i.e., the plurality. Enriching one at the cost of all others
3693would amount to deprivation to the plurality i.e., the nation itself. The
3694gist of the first question in the Presidential reference, raises the issue
3695whether ownership rights over the nation’s natural resources, vest in the
3696citizens of the country. An answer to the instant issue in turn would
3697determine, whether or not it is imperative for the executive while
3698formulating a policy for the disposal of natural resources, to ensure that
3699it subserves public good and public interest.
3700
37015. The introduction and acceptance of public interest litigation as a
3702jurisprudential concept is a matter of extensive debate in India, and even
3703more than that, outside India. This concept brings into focus the rights
3704of the plurality (as against individual’s right) specially when the
3705plurality is, for one or the other reason, not in a position to seek
3706redressal of its grievances. This inadequacy may not always emerge from
3707financial constrains. It may sometimes arise out of lack of awareness. At
3708other times merely from the overwhelming might of executive authority. The
3709jurisprudential thought in this country, after the emergence of public
3710interest litigation, is seeking to strike a balance between individual
3711rights and the rights of the plurality. After all, all natural resources
3712are the nation’s collective wealth. This Court has had the occasion over
3713the last few decades, to determine rights of citizens with reference to
3714natural resources. The right of an individual citizen to those assets, as
3715also, the rights of the remaining citizens of the country, have now emerged
3716on opposite sides in a common litigation. One will endeavour to delineate
3717the legal position expressed in decisions rendered by this Court, on issues
3718relatable to disposal of resources by the State, to determine whether the
3719instant issue stands settled, by law declared by this Court.
3720
37216(a) First of all reference was made to the decision of this Court in
3722S.G. Jaisinghani Vs. Union of India & Ors., AIR 1967 SC 1427, wherein this
3723Court observed as under:
3724 “14. In this context it is important to emphasize that the
3725 absence of arbitrary power is the first essential of the rule of law
3726 upon which our whole constitutional system is based. In a system
3727 governed by rule of law, discretion, when conferred upon executive
3728 authorities, must be confined within clearly defined limits. The rule
3729 of law from this point of view means that decisions should be made by
3730 the application of known principles and rules and, in general, such
3731 decisions should be predictable and the citizen should know where he
3732 is. If a decision is taken without any principle or without any rule
3733 it is unpredictable and such a decision is the antithesis of a
3734 decision taken in accordance with the Rule of law. (See Dicey — Law of
3735 the Constitution — 10th Edn., Introduction cx). “Law has reached its
3736 finest moments,†stated Douglas, J. in United States v. Wunderlich,
3737 (1951) 342 US 98, “when it has freed man from the unlimited discretion
3738 of some ruler.... Where discretion, is absolute, man has always
3739 suffered.†It is in this sense that the rule of law may be said to be
3740 the sworn enemy of caprice. Discretion, as Lord Mansfield slated it in
3741 classic terms in the case of John Wilkes, (1770) 4 Burr 2528 at p.
3742 2539 “means sound discretion guided by law. It must be governed by
3743 Rule, not by humour: it must not be arbitrary, vague, and fanciful.â€
3744
3745 (emphasis is mine)
3746
3747
3748In the aforesaid case, it came to be emphasized that executive action
3749should have clearly defined limits and should be predictable. In other
3750words, the man on the street should know why the decision has been taken in
3751favour of a particular party. What came to be impressed upon was, that
3752lack of transparency in the decision making process would render it
3753arbitrary.
3754(b) Also cited for our consideration was the judgment in Rashbihari
3755Panda etc. Vs. State of Orissa (1969) 1 SCC 414. In this case it was
3756canvassed on behalf of the appellants, that the machinery devised by the
3757Government for sale of Kendu leaves in which they had acquired a trade
3758monopoly, was violative of the fundamental rights guaranteed under Articles
375914 and 19(1)(g) of the Constitution. It was pointed out, that in the scheme
3760of events the purchasers were merely nominees of the agents. It is also
3761contended, that after the Supreme Court had struck down the policy under
3762which the agents were to carry on business in Kendu leaves on their own and
3763to make profit for themselves, the Government to help their party-men set
3764up a body of persons who were to be purchasers to whom the monopoly sales
3765were to be made at concessional rates and that the benefit which would have
3766otherwise been earned by the State would now get diverted to those
3767purchasers. It was held:
3768 “15. Section 10 of the Act is a counterpart of Section 3 and
3769 authorises the Government to sell or otherwise dispose of Kendu leaves
3770 in such manner as the Government may direct. If the monopoly of
3771 purchasing Kendu leaves by Section 3 is valid, insofar as it is
3772 intended to be administered only for the benefit of the State, the
3773 sale or disposal of Kendu leaves by the Government must also be in the
3774 public interest and not to serve the private interest of any person or
3775 class of persons. It is true that it is for the Government, having
3776 regard to all the circumstances, to act as a prudent businessman
3777 would, and to sell or otherwise dispose of Kendu leaves purchased
3778 under the monopoly acquired under Section 3, but the profit resulting
3779 from the sale must be for the public benefit and not for private gain.
3780 Section 11 which provides that out of the net profits derived by the
3781 Government from the trade in Kendu leaves an amount not less than one
3782 half is to be paid to the Samitis and Gram Panchayats emphasises the
3783 concept that the machinery of sale or disposal of Kendu leaves must
3784 also be quashed to serve the public interest. If the scheme of
3785 disposal creates a class of middlemen who would purchase from the
3786 Government Kendu leaves at concessional rates and would earn large
3787 profits disproportionate to the nature of the service rendered or duty
3788 performed by them, it cannot claim the protection of Article
3789 19(6)(ii).
3790
3791 16. Section 10 leaves the method of sale or disposal of Kendu leaves
3792 to the Government as they think fit. The action of the Government if
3793 conceived and executed in the interest of the general public is not
3794 open to judicial scrutiny. But it is not given to the Government
3795 thereby to create a monopoly in favour of third parties from their own
3796 monopoly.
3797
3798 17. Validity of the schemes adopted by the Government of Orissa for
3799 sale of Kendu leaves must be adjudged in the light of Article 19(1)(g)
3800 and Article 14. Instead of inviting tenders the Government offered to
3801 certain old contractors the option to purchase Kendu leaves for the
3802 year 1968 on terms mentioned therein. The reason suggested by the
3803 Government that these offers were made because the purchasers had
3804 carried out their obligations in the previous year to the satisfaction
3805 of the Government is not of any significance. From the affidavit filed
3806 by the State Government it appears that the price fetched at public
3807 auctions before and after January 1968, were much higher than the
3808 prices at which Kendu leaves were offered to the old contractors. The
3809 Government realised that the scheme of offering to enter into
3810 contracts with the old licensees and to renew their terms was open to
3811 grave objection, since it sought arbitrarily to exclude many persons
3812 interested in the trade. The Government then decided to invite offers
3813 for advance purchases of Kendu leaves but restricted the invitation to
3814 those individuals who had carried out the contracts in the previous
3815 year without default and to the satisfaction of the Government. By the
3816 new scheme instead of the Government making an offer, the existing
3817 contractors were given the exclusive right to make offers to purchase
3818 Kendu leaves. But insofar as the right to make tenders for the
3819 purchase of Kendu leaves was restricted to those persons who had
3820 obtained contracts in the previous year the scheme was open to the
3821 same objection. The right to make offers being open to a limited class
3822 of persons it effectively shut out all other persons carrying on trade
3823 in Kendu leaves and also new entrants into that business. It was ex
3824 facie discriminatory, and imposed unreasonable restrictions upon the
3825 right of persons other than existing contractors to carry on business.
3826 In our view, both the schemes evolved by the Government were violative
3827 of the fundamental right of the petitioners under Article 19(1)(g) and
3828 Article 14 because the schemes gave rise to a monopoly in the trade in
3829 Kendu leaves to certain traders, and singled out other traders for
3830 discriminatory treatment.
3831
3832 18. The classification based on the circumstance that certain existing
3833 contractors had carried out their obligations in the previous year
3834 regularly and to the satisfaction of the Government is not based on
3835 any real and substantial distinction bearing a just and reasonable
3836 relation to the object sought to be achieved i.e. effective execution
3837 of the monopoly in the public interest. Exclusion of all persons
3838 interested in the trade, who were not in the previous year licensees
3839 is ex facie arbitrary, it had no direct relation to the object of
3840 preventing exploitation of pluckers and growers of Kendu leaves, nor
3841 had it any just or reasonable relation to the securing of the full
3842 benefit from the trade to the State.
3843
3844 19. Validity of the law by which the State assumed the monopoly to
3845 trade in a given commodity has to be judged by the test whether the
3846 entire benefit arising therefrom is to enure to the State, and the
3847 monopoly is not used as a cloak for conferring private benefit upon a
3848 limited class of persons. The scheme adopted by the Government first
3849 of offering to enter into contracts with certain named licensees, and
3850 later inviting tenders from licensees who had in the previous year
3851 carried out their contracts satisfactorily is liable to be adjudged
3852 void on the ground that it unreasonably excludes traders in Kendu
3853 leaves from carrying on their business. The scheme of selling Kendu
3854 leaves to selected purchasers or of accepting tenders only from a
3855 specified class of purchasers was not “integrally and essentiallyâ€
3856 connected with the creation of the monopoly and was not on the view
3857 taken by this Court in Akadasi Padhan case, (1963) Supp. 2 SCC 691,
3858 protected by Article 19(6)(ii): it had therefore to satisfy the
3859 requirement of reasonableness under the first part of Article 19(6).
3860 No attempt was made to support the scheme on the ground that it
3861 imposed reasonable restrictions on the fundamental rights of the
3862 traders to carry on business in Kendu leaves. The High Court also did
3863 not consider whether the restrictions imposed upon persons excluded
3864 from the benefit of trading satisfied the test of reasonableness under
3865 the first part of Article 19(6). The High Court examined the problem
3866 from the angle whether the action of the State Government was vitiated
3867 on account of any oblique motive, and whether it was such as a prudent
3868 person carrying on business may adopt.
3869
3870 20. No explanation has been attempted on behalf of the State as to why
3871 an offer made by a well known manufacturer of bidis interested in the
3872 trade to purchase the entire crop of Kendu leaves for the year 1968
3873 for rupees three crores was turned down. If the interests of the State
3874 alone were to be taken into consideration, the State stood to gain
3875 more than rupees one crore by accepting that offer. We are not
3876 suggesting that merely because that offer was made, the Government was
3877 bound to accept it. The Government had to consider, as prudent
3878 businessman, whether, having regard to the circumstances, it should
3879 accept the offer, especially in the light of the financial position of
3880 the offeror, the security which he was willing to give and the effect
3881 which the acceptance of the offer may have on the other traders and
3882 the general public interest.
3883
3884 21. The learned Judges of the High Court have observed that in their
3885 view the exercise of the discretion was not shown to be arbitrary, nor
3886 was the action shown to be lacking in bona fides. But that conclusion
3887 is open to criticism that the Government is not shown to have
3888 considered the prevailing prices of Kendu leaves about the time when
3889 offers were made, the estimated crop of Kendu leaves, the conditions
3890 in the market and the likelihood of offerers at higher prices carrying
3891 out their obligations, and whether it was in the interests of the
3892 State to invite tenders in the open market from all persons whether
3893 they had or had not taken contracts in the previous year. If the
3894 Government was anxious to ensure due performance by those who
3895 submitted tenders for purchase of Kendu leaves, it was open to the
3896 Government to devise adequate safeguards in that behalf. In our
3897 judgment, the plea that the action of the Government was bona fide
3898 cannot be an effective answer to a claim made by a citizen that his
3899 fundamental rights were infringed by the action of the Government, nor
3900 can the claim of the petitioners be defeated on the plea that the
3901 Government in adopting the impugned scheme committed an error of
3902 judgment.
3903
3904 22. That plea would have assisted the Government if the action was in
3905 law valid and the objection was that the Government erred in the
3906 exercise of its discretion. It is unnecessary in the circumstances to
3907 consider whether the Government acted in the interest of their party-
3908 men and to increase party funds in devising the schemes for sale of
3909 Kendu leaves in 1968.
3910
3911 23. During the pendency of these proceedings the entire year for which
3912 the contracts were given has expired. The persons to whom the
3913 contracts were given are not before us, and we cannot declare the
3914 contracts which had been entered into by the Government for the sale
3915 of Kendu leaves for the year 1968 unlawful in these proceedings.
3916 Counsel for the appellants agrees that it would be sufficient if it be
3917 directed that the tenders for purchase of Kendu leaves be invited by
3918 the Government in the next season from all persons interested in the
3919 trade. We trust that in accepting tenders, the State Government will
3920 act in the interest of the general public and not of any class of
3921 traders so that in the next season the State may get the entire
3922 benefit of the monopoly in the trade in Kendu leaves and no
3923 disproportionate share thereof may be diverted to any private agency.
3924 Subject to these observations we make no further order in the
3925 petitions out of which these appeals arise.â€
3926
3927 (emphasis is mine)
3928
3929
3930A perusal of the observations made by this Court reveal, that the
3931Government must act as a prudent businessman, and that, the profit earned
3932should be for public benefit and not for private gains. A plea of
3933reasonable restriction raised under Article 19(6) of the Constitution of
3934India to save the governmental action was rejected on the ground that the
3935scheme created middlemen who would earn large disproportionate profits.
3936This Court also held the action to be discriminatory because it excluded
3937others like the petitioners from the zone of consideration. Finally, a
3938direction came to be issued by this Court requiring the Government to act
3939in the interest of the general public and to invite tenders so that the
3940State may earn the entire benefit in a manner that no disproportionate
3941profits are diverted to any private agency.
3942(c) Reliance was also placed on Ramana Dayaram Shetty Vs.
3943International Airport Authority of India & Ors., (1979) 3 SCC 489, wherein
3944this Court held as under:
3945 “21. This rule also flows directly from the doctrine of
3946 equality embodied in Article 14. It is now well-settled as a result of
3947 the decisions of this Court in E.P. Royappa v. State of Tamil Nadu,
3948 (1974) 4 SCC 3, and Maneka Gandhi v. Union of India, (1978) 1 SCC 248,
3949 that Article 14 strikes at arbitrariness in State action and ensures
3950 fairness and equality of treatment. It requires that State action must
3951 not be arbitrary but must be based on some rational and relevant
3952 principle which is non-discriminatory: it must not be guided by any
3953 extraneous or irrelevant considerations, because that would be denial
3954 of equality. The principle of reasonableness and rationality which is
3955 legally as well as philosophically an essential element of equality or
3956 non-arbitrariness is projected by Article 14 and it must characterise
3957 every State action, whether it be under authority of law or in
3958 exercise of executive power without making of law. The State cannot,
3959 therefore, act arbitrarily in entering into relationship, contractual
3960 or otherwise with a third party, but its action must conform to some
3961 standard or norm which is rational and non-discriminatory. This
3962 principle was recognised and applied by a Bench of this Court presided
3963 over by Ray, C.J., in Erusian Equipment and Chemicals Ltd. v. State of
3964 West Bengal (supra) where the learned Chief Justice pointed out that-
3965 “the State can carry on executive function by making a law or
3966 without making a law. The exercise of such powers and functions
3967 in trade by the State is subject to Part III of the
3968 Constitution. Article 14 speaks of equality before the law and
3969 equal protection of the laws. Equality of opportunity should
3970 apply to matters of public contracts. The State has the right to
3971 trade. The State has there the duty to observe equality. An
3972 ordinary individual can choose not to deal with any person. The
3973 Government cannot choose to exclude persons by discrimination.
3974 The order of blacklisting has the effect of depriving a person
3975 of equality of opportunity in the matter of public contract. A
3976 person who is on the approved list is unable to enter into
3977 advantageous relations with the Government because of the order
3978 of blacklisting .... A citizen has a right to claim equal
3979 treatment to enter into a contract which may be proper,
3980 necessary and essential to his lawful calling .... It is true
3981 that neither the petitioner nor the respondent has any right to
3982 enter into a contract but they are entitled to equal treatment
3983 with others who offer tender or quotations for the purchase of
3984 the goodsâ€.
3985 It must, therefore follow as a necessary corollary from the principle
3986 of equality enshrined in Article 14 that though the State is entitled
3987 to refuse to enter into relationship with any one, yet if it does so,
3988 it cannot arbitrarily choose any person it likes for entering into
3989 such relationship and discriminate between persons similarly
3990 circumstanced, but it must act in conformity with some standard or
3991 principle which meets the test of reasonableness and non-
3992 discrimination and any departure from such standard or principle would
3993 be invalid unless it can be supported or justified on some rational
3994 and non discriminatory ground.
3995
3996 22. It is interesting to find that this rule was recognised and
3997 applied by a Constitution Bench of this Court in a case of sale of
3998 kendu leaves by the Government of Orissa in Rashbihari Panda v. State
3999 of Orissa, (1969) 1 SCC 414….. This decision wholly supports the view
4000 we are taking in regard to the applicability of the rule against
4001 arbitrariness in State action.â€
4002
4003 (emphasis is mine)
4004
4005
4006An analysis of the aforesaid determination by this Court would lead to the
4007inference that the State has the right to trade. In executing public
4008contracts in its trading activity the State must be guided by relevant
4009principles, and not by extraneous or irrelevant consideration. The same
4010should be based on reasonableness and rationality as well as non-
4011arbitrariness. It came to be concluded, that the State while entering into
4012a contractual relationship, was bound to maintain the standards referred to
4013above. And any departure from the said standards would be invalid unless
4014the same is supported by good reasons.
4015(d) Our attention was also invited to the decision rendered in Kasturi
4016Lal Lakshmi Reddy Vs. State of Jammu & Kashmir & Anr., (1980) 4 SCC 1,
4017wherein the factual background as well as, the legal position came to be
4018expressed in paragraph 19 of the judgment which is being set out below:
4019 “19. It is clear from the backdrop of the facts and
4020 circumstances in which the impugned Order came to be made and the
4021 terms and conditions set out in the impugned Order that it was not a
4022 tapping contract simpliciter which was intended to be given to the
4023 second respondents. The second respondents wanted to be assured of
4024 regular supply of raw material in the shape of resin before they could
4025 decide to set up a factory within the State and it was for the purpose
4026 of ensuring supply of such raw material that the impugned Order was
4027 made giving tapping contract to the second respondents. It was really
4028 by way of allocation of raw material for running the factory that the
4029 impugned Order was passed. The terms of the impugned Order show beyond
4030 doubt that the second respondents were under an obligation to set up a
4031 factory within the State and that 3500 metric tonnes of resin which
4032 was permitted to be retained by the second respondents out of the
4033 resin extracted by them was required to be utilised in the factory to
4034 be set up by them and it was provided that no part of the resin
4035 extracted should be allowed to be removed outside the State. The whole
4036 object of the impugned Order was to make available 3500 metric tonnes
4037 of resin to the second respondents for the purpose of running the
4038 factory to be set up by them. The advantage to the State was that a
4039 new factory for manufacture of rosin, turpentine oil and other
4040 derivatives would come up within its territories offering more job
4041 opportunities to the people of the State increasing their prosperity
4042 and augmenting the State revenues and in addition the State would be
4043 assured of a definite supply of at least 1500 metric tonnes of resin
4044 for itself without any financial involvement or risk and with this
4045 additional quantity of resin available to it, it would be able to set
4046 up another factory creating more employment opportunities and, in
4047 fact, as the counter-affidavit of Ghulam Rasul, Under-Secretary to the
4048 Government filed on behalf of the State shows the Government lost no
4049 time in taking steps to set up a public sector resin distillation
4050 plant in a far-flung area of the State, namely, Sundarbani, in Rajouri
4051 District. Moreover, the State would be able to secure extraction of
4052 resin from these inaccessible areas on the best possible terms instead
4053 of allowing them to remain unexploited or given over at ridiculously
4054 low royalty. We cannot accept the contention of the petitioners that
4055 under the impugned Order a huge benefit was conferred on the second
4056 respondents at the cost of the State. It is clear from the terms of
4057 the impugned Order that the second respondents would have to extract
4058 at least 5000 metric tonnes of resin from the blazes allotted to them
4059 in order to be entitled to retain 3500 metric tonnes. The counter-
4060 affidavit of Ghulam Rasul on behalf of the first respondent and Guran
4061 Devaya on behalf of the second respondents show that the estimated
4062 cost of extraction and collection of resin from these inaccessible
4063 areas would be at the least Rs 175 per quintal, though according to
4064 Guran Devaya it would be in the neighbourhood of Rs.200 per quintal,
4065 but even if we take the cost at the minimum figure of Rs.175 per
4066 quintal, the total cost of extraction and collection would come to
4067 Rs.87,50,000 and on this investment of Rs.87,50,000 required to be
4068 made by the second respondents the amount of interest at the
4069 prevailing bank rate would work out to about Rs.13,00,000. Now, as
4070 against this expenditure of Rs 87,50,000 plus Rs.13,00,000 the second
4071 respondents would be entitled to claim from the State, in respect of
4072 1500 metric tonnes of resin to be delivered to it only at the rate
4073 sanctioned by the Forest Department for the adjoining accessible
4074 forests which were being worked on wage-contract basis. It is stated
4075 in the counter-affidavits of Ghulam Rasul and Guran Devaya and this
4076 statement is not seriously challenged on behalf of the petitioners,
4077 that the cost of extraction and collection as sanctioned by the Forest
4078 Department for the adjoining accessible forests given on wage-contract
4079 basis in the year 1978-79 was Rs.114 per quintal and the second
4080 respondents would, thus, be entitled to claim from the State no more
4081 than Rs.114 per quintal in respect of 1500 metric tonnes to be
4082 delivered to it and apart from bearing the difference between the
4083 actual cost of extraction and collection and the amount received from
4084 the State at the rate of Rs.114 per quintal in respect of 1500 metric
4085 tonnes, the second respondents would have to pay the price of the
4086 remaining 3500 metric tonnes to be retained by them at the rate of
4087 Rs.350 per quintal. On this reckoning, the cost of 3500 metric tonnes
4088 to be retained by the second respondents would work out at Rs.474 per
4089 quintal. The result would be that under the impugned Order the State
4090 would get 1500 metric tonnes of resin at the rate of Rs.114 per
4091 quintal while the second respondents would have to pay at the rate of
4092 Rs.474 per quintal for the balance of 3500 metric tonnes retained by
4093 them. Obviously, a large benefit would accrue to the State under the
4094 impugned Order. If the State were to get the blazes in these
4095 inaccessible areas tapped through wage contract, the minimum cost
4096 would be Rs.175 per quintal, without taking into account the
4097 additional expenditure on account of interest, but under the impugned
4098 Order the State would get 1500 metric tonnes of resin at a greatly
4099 reduced rate of Rs.114 per quintal without any risk or hazard. The
4100 State would also receive for 3500 metric tonnes of resin retained by
4101 the second respondents price or royalty at the rate of Rs.474 per
4102 quintal which would be much higher than the rate of Rs.260 per quintal
4103 at which the State was allotting resin to medium scale industrial
4104 units and the rate of Rs.320 per quintal at which it was allotting
4105 resin to small scale units within the State. It is difficult to see
4106 how on these facts the impugned Order could be said to be
4107 disadvantageous to the State or in any way favouring the second
4108 respondents at the cost of the State. The argument of the petitioners
4109 was that at the auctions held in December 1978, January 1979 and April
4110 1979, the price of resin realised was as much as Rs.484, Rs.520 and
4111 Rs.700 per quintal respectively and when the market price was so high,
4112 it was improper and contrary to public interest on the part of the
4113 State to sell resin to the second respondents at the rate of Rs.320
4114 per quintal under the impugned Order. This argument, plausible though
4115 it may seem, is fallacious because it does not take into account the
4116 policy of the State not to allow export of resin outside its
4117 territories but to allot it only for use in factories set up within
4118 the State. It is obvious that, in view of this policy, no resin would
4119 be auctioned by the State and there would be no question of sale of
4120 resin in the open market and in this situation, it would be totally
4121 irrelevant to import the concept of market price with reference to
4122 which the adequacy of the price charged by the State to the 2nd
4123 respondents could be judged. If the State were simply selling resin,
4124 there can be no doubt that the State must endeavour to obtain the
4125 highest price subject, of course, to any other overriding
4126 considerations of public interest and in that event, its action in
4127 giving resin to a private individual at a lesser price would be
4128 arbitrary and contrary to public interest. But, where the State has,
4129 as a matter of policy, stopped selling resin to outsiders and decided
4130 to allot it only to industries set up within the State for the purpose
4131 of encouraging industrialisation, there can be no scope for complaint
4132 that the State is giving resin at a lesser price than that which could
4133 be obtained in the open market. The yardstick of price in the open
4134 market would be wholly inept, because in view of the State policy,
4135 there would be no question of any resin being sold in the open market.
4136 The object of the State in such a case is not to earn revenue from
4137 sale of resin, but to promote the setting up of industries within the
4138 State. Moreover, the prices realised at the auctions held in December
4139 1978, January 1979 and April 1979 did not reflect the correct and
4140 genuine price of resin, because by the time these auctions came to be
4141 held, it had become known that the State had taken a policy decision
4142 to ban export of resin from its territories with effect from 1979-80
4143 and the prices realised at the auctions were therefore scarcity
4144 prices. In fact, the auction held in April 1979 was the last auction
4145 in the State and since it was known that in future no resin would be
4146 available for sale by auction in the open market to outsiders, an
4147 unduly high price of Rs.700 per quintal was offered by the factory
4148 owners having their factories outside the State, so that they would
4149 get as much resin for the purpose of feeding their industrial units
4150 for some time. The counter-affidavits show that, in fact, the average
4151 sale price of resin realised during the year 1978-79 was only Rs.433
4152 per quintal and as compared to this price, the 2nd respondents were
4153 required to pay price or royalty at a higher rate of Rs.474 per
4154 quintal for 3500 metric tonnes of resin to be retained by them under
4155 the impugned Order. It is in the circumstances impossible to see how
4156 it can at all be said that any benefit was conferred on the second
4157 respondents at the cost of the State. The first head of challenge
4158 against the impugned Order must, therefore, be rejected.â€
4159
4160 (emphasis is mine)
4161
4162
4163An examination of the factual position of the controversy dealt with in the
4164judgment extracted above reveals, that the State Government formulated a
4165policy to set up a factory within the State, which would result in creation
4166of more job opportunities for the people of the State. The setting up of
4167the said factory would assure the State of atleast 1500 metric tones of
4168resin without any financial involvement. This in turn would enable the
4169State to set up another factory creating further employment opportunities
4170for the people of the State. It is therefore, that this Court concluded
4171that the impugned order passed by the State in favour of the second
4172respondent could not be said to be disadvantageous to the State and
4173favouring the second respondent. In a manner of understanding, this Court
4174found no infirmity in the impugned order passed by the State Government
4175because the State Government had given effect to a policy which would “best
4176subserve the common good†of the inhabitants of the State (as in Article
417739(b) of the Constitution of India) while assigning a material resource,
4178though no reference was made to Article 39(b) of the Constitution of India
4179in the judgment. What is also of importance is, that this Court expressly
4180noticed, that if the State Government was simply selling resin, it was
4181obliged to obtain the highest possible price.
4182(e) Reference was then made to Dwarkadas Marfatia and Sons Vs. Board
4183of Trustees of the Port of Bombay, (1989) 3 SCC 293, wherein the case of
4184the respondent was, that in his evidence it had been mentioned by Katara
4185that the plot had been allotted to Dhanji Mavji since it was the policy of
4186the Bombay Port Trust to allot a reconstituted plot to a person occupying a
4187major portion of such plot. It was further asserted, that there was no
4188challenge to this evidence in cross-examination. It was also asserted, that
4189there was no evidence on the alleged policy of the Port Trust of giving
4190plots on joint tenancy to all the occupants. According to learned counsel
4191for the respondent, in the letters addressed by the Port Trust and in the
4192letters by and on behalf of the appellant and/or their alleged associate
4193concerns they had specifically admitted, that there was a policy of the
4194Port Trust to allot plots to the occupants of the major portions thereof
4195and in fact a grievance was made by them, that in accordance with the said
4196policy of the Bombay Port Trust, a plot was not being allotted to the
4197associates of the appellant. In that view of the matter it was contended,
4198that the issue whether the plot should have been given on joint tenancy or
4199not, could not have been gone into by the court in exercise of its
4200jurisdiction of judicial review. Reliance was placed on the observations of
4201Lord Justice Diplock in Council of Civil Service Unions v. Minister for the
4202Civil Service, (1984) 3 All ER 935, 950, where the learned Lord Justice
4203classified 3 grounds subject to control of judicial review, namely,
4204illegality, irrationality and procedural impropriety. In the aforesaid
4205factual background this Court concluded as under:
4206 “21. We are unable to accept the submissions. Being a public
4207 body even in respect of its dealing with its tenant, it must act in
4208 public interest, and an infraction of that duty is amenable to
4209 examination either in civil suit or in writ jurisdiction.
4210 ….. …..
4211
4212 28. Learned Additional Solicitor General reiterated on behalf of the
4213 respondent that no question of mala fide had been alleged or proved in
4214 these proceedings. Factually, he is right. But it has to be borne in
4215 mind that governmental policy would be invalid as lacking in public
4216 interest, unreasonable or contrary to the professed standards and this
4217 is different from the fact that it was not done bona fide. It is true
4218 as learned Additional Solicitor General contended that there is always
4219 a presumption that a governmental action is reasonable and in public
4220 interest. It is for the party challenging its validity to show that
4221 the action is unreasonable, arbitrary or contrary to the professed
4222 norms or not informed by public interest, and the burden is a heavy
4223 one.
4224
4225 ….. …...
4226
4227 37. As we look upon the facts of this case, there was an implied
4228 obligation in respect of dealings with the tenants/occupants of the
4229 Port Trust authority to act in public interest/purpose. That
4230 requirement is fulfilled if it is demonstrated that the Port Trust
4231 authorities have acted in pursuance of a policy which is referable to
4232 public purpose. Once that norm is established whether that policy is
4233 the best policy or whether another policy was possible, is not
4234 relevant for consideration. It is, therefore, not necessary for our
4235 present purposes to dwell on the question whether the obligation of
4236 the Port Trust authorities to act in pursuance of a public purpose was
4237 a public law purpose or a private law purpose. Under the
4238 constitutional scheme of this country the Port Trust authorities were
4239 required by relevant law to act in pursuance of public purpose. We are
4240 satisfied that they have proceeded to so act.
4241
4242 (emphasis is mine)
4243
4244
4245In the instant matter, even though the controversy pertained to a tenancy
4246issue, this Court held, that a public body was bound to act in public
4247interest.
4248(f) In chronological sequence, learned counsel then cited Mahabir Auto
4249Stores & Ors. Vs. Indian Oil Corporation & Ors. (1990) 3 SCC 752. Relevant
4250observations made therein, with reference to the present controversy, are
4251being placed below:
4252“12. It is well settled that every action of the State or an
4253instrumentality of the State in exercise of its executive power, must be
4254informed by reason. In appropriate cases, actions uninformed by reason may
4255be questioned as arbitrary in proceedings under Article 226 or Article 32
4256of the Constitution. Reliance in this connection may be placed on the
4257observations of this Court in Radha Krishna Agarwal v. State of Bihar,
4258(1977) 3 SCC 457. It appears to us, at the outset, that in the facts and
4259circumstances of the case, the respondent company IOC is an organ of the
4260State or an instrumentality of the State as contemplated under Article 12
4261of the Constitution. The State acts in its executive power under Article
4262298 of the Constitution in entering or not entering in contracts with
4263individual parties. Article 14 of the Constitution would be applicable to
4264those exercises of power. Therefore, the action of State organ under
4265Article 14 can be checked. See Radha Krishna Agarwal v. State of Bihar at
4266p. 462, but Article 14 of the Constitution cannot and has not been
4267construed as a charter for judicial review of State action after the
4268contract has been entered into, to call upon the State to account for its
4269actions in its manifold activities by stating reasons for such actions. In
4270a situation of this nature certain activities of the respondent company
4271which constituted State under Article 12 of the Constitution may be in
4272certain circumstances subject to Article 14 of the Constitution in entering
4273or not entering into contracts and must be reasonable and taken only upon
4274lawful and relevant consideration; it depends upon facts and circumstances
4275of a particular transaction whether hearing is necessary and reasons have
4276to be stated. In case any right conferred on the citizens which is sought
4277to be interfered, such action is subject to Article 14 of the Constitution,
4278and must be reasonable and can be taken only upon lawful and relevant
4279grounds of public interest. Where there is arbitrariness in State action
4280of this type of entering or not entering into contracts, Article 14 springs
4281up and judicial review strikes such an action down. Every action of the
4282State executive authority must be subject to rule of law and must be
4283informed by reason. So, whatever be the activity of the public authority,
4284in such monopoly or semi-monopoly dealings, it should meet the test of
4285Article 14 of the Constitution. If a governmental action even in the
4286matters of entering or not entering into contracts, fails to satisfy the
4287test of reasonableness, the same would be unreasonable. In this connection
4288reference may be made to E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC
42893, Maneka Gandhi v. Union of India, (1978) 1 SCC 248, Ajay Hasia v. Khalid
4290Mujib Sehravardi, (1981) 1 SCC 722, R.D. Shetty v. International Airport
4291Authority of India, (1979) 3 SCC 489, and also Dwarkadas Marfatia and Sons
4292v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293. It appears to
4293us that rule of reason and rule against arbitrariness and discrimination,
4294rules of fair play and natural justice are part of the rule of law
4295applicable in situation or action by State instrumentality in dealing with
4296citizens in a situation like the present one. Even though the rights of the
4297citizens are in the nature of contractual rights, the manner, the method
4298and motive of a decision of entering or not entering into a contract, are
4299subject to judicial review on the touchstone of relevance and
4300reasonableness, fair play, natural justice, equality and non-discrimination
4301in the type of the transactions and nature of the dealing as in the present
4302case.
4303….. …..
4304
430517. We are of the opinion that in all such cases whether public law or
4306private law rights are involved, depends upon the facts and circumstances
4307of the case. The dichotomy between rights and remedies cannot be
4308obliterated by any strait-jacket formula. It has to be examined in each
4309particular case. Mr Salve sought to urge that there are certain cases under
4310Article 14 of arbitrary exercise of such “power†and not cases of exercise
4311of a “right†arising either under a contract or under a statute. We are of
4312the opinion that that would depend upon the factual matrix.
4313
431418. Having considered the facts and circumstances of the case and the
4315nature of the contentions and the dealing between the parties and in view
4316of the present state of law, we are of the opinion that decision of the
4317State/public authority under Article 298 of the Constitution, is an
4318administrative decision and can be impeached on the ground that the
4319decision is arbitrary or violative of Article 14 of the Constitution of
4320India on any of the grounds available in public law field. It appears to us
4321that in respect of corporation like IOC when without informing the parties
4322concerned, as in the case of the appellant-firm herein on alleged change of
4323policy and on that basis action to seek to bring to an end to course of
4324transaction over 18 years involving large amounts of money is not fair
4325action, especially in view of the monopolistic nature of the power of the
4326respondent in this field. Therefore, it is necessary to reiterate that even
4327in the field of public law, the relevant persons concerned or to be
4328affected, should be taken into confidence. Whether and in what
4329circumstances that confidence should be taken into consideration cannot be
4330laid down on any strait-jacket basis. It depends on the nature of the right
4331involved and nature of the power sought to be exercised in a particular
4332situation. It is true that there is discrimination between power and right
4333but whether the State or the instrumentality of a State has the right to
4334function in public field or private field is a matter which, in our
4335opinion, depends upon the facts and circumstances of the situation, but
4336such exercise of power cannot be dealt with by the State or the
4337instrumentality of the State without informing and taking into confidence,
4338the party whose rights and powers are affected or sought to be affected,
4339into confidence. In such situations most often people feel aggrieved by
4340exclusion of knowledge if not taken into confidence.
4341
434219. Such transaction should continue as an administrative decision
4343with the organ of the State. It may be contractual or statutory but in a
4344situation of transaction between the parties for nearly two decades, such
4345procedure should be followed which will be reasonable, fair and just, that
4346is, the process which normally be accepted (sic is expected) to be followed
4347by an organ of the State and that process must be conscious and all those
4348affected should be taken into confidence.
4349
435020. Having regard to the nature of the transaction, we are of the
4351opinion that it would be appropriate to state that in cases where the
4352instrumentality of the state enters the contractual field, it should be
4353governed by the incidence of the contract. It is true that it may not be
4354necessary to give reasons but, in our opinion, in the field of this nature
4355fairness must be there to the parties concerned, and having regard to the
4356large number or the long period and the nature of the dealings between the
4357parties, the appellant should have been taken into confidence. Equality and
4358fairness at least demands this much from an instrumentality of the State
4359dealing with a right of the State not to treat the contract as subsisting.
4360We must, however, evolve such process which will work.
4361….. …..
4362
436323. It is not our decision which is important but a decision on the
4364above basis should be arrived at which should be fair, just and reasonable
4365— and consistent with good government — which will be arrived at fairly and
4366should be taken after taking the persons concerned whose rights/obligations
4367are affected, into confidence. Fairness in such action should be
4368perceptible, if not transparent.â€
4369 (emphasis is mine)
4370
4371What came to be concluded in the judgment extracted above can be described
4372as an extension of the applicability of Article 14 of the Constitution of
4373India on the subject of contractual agreements. Hithertobefore, an act of
4374awarding contracts was adjudged on the touchstone of fairness. For the
4375first time, even a decision of not entering into a contractual arrangement
4376has been brought under the scope of judicial review. The requirement of
4377being fair, just and reasonable, i.e., principles applicable in good
4378governance, have been held to be equally applicable for not entering into a
4379contractual arrangement. Another facet of the aforesaid decision was, that
4380this Court expressed, that the contracting party had the right to be
4381informed (the right to know) why the contractual arrangement which had
4382continued for long years (from 1965 to 1983) was being terminated.
4383(g) Much emphasis was placed on the judgment rendered by this Court in
4384Kumari Shrilekha Vidyarthi & Ors. Vs. State of U.P. & Ors. (1991) 1 SCC
4385212. Observations which relied upon during the course of hearing are being
4386set out hereinunder:
4387 21. The Preamble of the Constitution of India resolves to secure to
4388 all its citizens Justice, social, economic and political; and Equality
4389 of status and opportunity. Every State action must be aimed at
4390 achieving this goal. Part IV of the Constitution contains ‘Directives
4391 Principles of State Policy’ which are fundamental in the governance of
4392 the country and are aimed at securing social and economic freedoms by
4393 appropriate State action which is complementary to individual
4394 fundamental rights guaranteed in Part III for protection against
4395 excesses of State action, to realise the vision in the Preamble. This
4396 being the philosophy of the Constitution, can it be said that it
4397 contemplates exclusion of Article 14 — non-arbitrariness which is
4398 basic to rule of law — from State actions in contractual field when
4399 all actions of the State are meant for public good and expected to be
4400 fair and just? We have no doubt that the Constitution does not
4401 envisage or permit unfairness or unreasonableness in State actions in
4402 any sphere of its activity contrary to the professed ideals in the
4403 Preamble. In our opinion, it would be alien to the constitutional
4404 scheme to accept the argument of exclusion of Article 14 in
4405 contractual matters. The scope and permissible grounds of judicial
4406 review in such matters and the relief which may be available are
4407 different matters but that does not justify the view of its total
4408 exclusion. This is more so when the modern trend is also to examine
4409 the unreasonableness of a term in such contracts where the bargaining
4410 power is unequal so that these are not negotiated contracts but
4411 standard form contracts between unequals.
4412
4413
4414 22. There is an obvious difference in the contracts between
4415 private parties and contracts to which the State is a party. Private
4416 parties are concerned only with their personal interest whereas the
4417 State while exercising its powers and discharging its functions, acts
4418 indubitably, as is expected of it, for public good and in public
4419 interest. The impact of every State action is also on public interest.
4420 This factor alone is sufficient to import at least the minimal
4421 requirements of public law obligations and impress with this character
4422 the contracts made by the State or its instrumentality. It is a
4423 different matter that the scope of judicial review in respect of
4424 disputes falling within the domain of contractual obligations may be
4425 more limited and in doubtful cases the parties may be relegated to
4426 adjudication of their rights by resort to remedies provided for
4427 adjudication of purely contractual disputes. However, to the extent,
4428 challenge is made on the ground of violation of Article 14 by alleging
4429 that the impugned act is arbitrary, unfair or unreasonable, the fact
4430 that the dispute also falls within the domain of contractual
4431 obligations would not relieve the State of its obligation to comply
4432 with the basic requirements of Article 14. To this extent, the
4433 obligation is of a public character invariably in every case
4434 irrespective of there being any other right or obligation in addition
4435 thereto. An additional contractual obligation cannot divest the
4436 claimant of the guarantee under Article 14 of non-arbitrariness at the
4437 hands of the State in any of its actions.
4438
4439
4440 23. Thus, in a case like the present, if it is shown that the
4441 impugned State action is arbitrary and, therefore, violative of
4442 Article 14 of the Constitution, there can be no impediment in striking
4443 down the impugned act irrespective of the question whether an
4444 additional right, contractual or statutory, if any, is also available
4445 to the aggrieved persons.
4446
4447
4448 24. The State cannot be attributed the split personality of Dr Jekyll
4449 and Mr Hyde in the contractual field so as to impress on it all the
4450 characteristics of the State at the threshold while making a contract
4451 requiring it to fulfil the obligation of Article 14 of the
4452 Constitution and thereafter permitting it to cast off its garb of
4453 State to adorn the new robe of a private body during the subsistence
4454 of the contract enabling it to act arbitrarily subject only to the
4455 contractual obligations and remedies flowing from it. It is really the
4456 nature of its personality as State which is significant and must
4457 characterize all its actions, in whatever field, and not the nature of
4458 function, contractual or otherwise, which is decisive of the nature of
4459 scrutiny permitted for examining the validity of its act. The
4460 requirement of Article 14 being the duty to act fairly, justly and
4461 reasonably, there is nothing which militates against the concept of
4462 requiring the State always to so act, even in contractual matters.
4463 There is a basic difference between the acts of the State which must
4464 invariably be in pubic interest and those of a private individual,
4465 engaged in similar activities, being primarily for personal gain,
4466 which may or may not promote public interest. Viewed in this manner,
4467 in which we find no conceptual difficulty or anachronism, we find no
4468 reason why the requirement of Article 14 should not extend even in the
4469 sphere of contractual matters for regulating the conduct of the State
4470 activity.
4471
4472
4473 25. In Wade: Administrative Law (6th edn.) after indicating that ‘the
4474 powers of public authorities are essentially different from those of
4475 private persons’, it has been succinctly stated at pp. 400-01 as
4476 under:
4477
4478 “... The whole conception of unfettered discretion is
4479 inappropriate to a public authority, which possesses powers
4480 solely in order that it may use them for the public good.
4481
4482 There is nothing paradoxical in the imposition of such legal
4483 limits. It would indeed be paradoxical if they were not imposed.
4484 Nor is this principle an oddity of British or American law: it
4485 is equally prominent in French law. Nor is it a special
4486 restriction which fetters only local authorities: it applies no
4487 less to ministers of the Crown. Nor is it confined to the sphere
4488 of administration: it operates wherever discretion is given for
4489 some public purpose, for example where a judge has a discretion
4490 to order jury trial. It is only where powers are given for the
4491 personal benefit of the person empowered that the discretion is
4492 absolute. Plainly this can have no application in public law.
4493
4494 For the same reasons there should in principle be no such thing
4495 as unreviewable administrative discretion, which should be just
4496 as much a contradiction in terms as unfettered discretion. The
4497 question which has to be asked is what is the scope of judicial
4498 review, and in a few special cases the scope for the review of
4499 discretionary decisions may be minimal. It remains axiomatic
4500 that all discretion is capable of abuse, and that legal limits
4501 to every power are to be found somewhere.
4502
4503 The view, we are taking, is, therefore, in consonance with the current
4504 thought in this field. We have no doubt that the scope of judicial
4505 review may vary with reference to the type of matter involved, but the
4506 fact that the action is reviewable, irrespective of the sphere in
4507 which it is exercised, cannot be doubted.
4508
4509 26. A useful treatment of the subject is to be found in an
4510 article “Judicial Review and Contractual Powers of Public
4511 Authoritiesâ€, (1990) 106 LQR 277-92. The conclusion drawn in the
4512 article on the basis of recent English decisions is that “public law
4513 principles designed to protect the citizens should apply because of
4514 the public nature of the body, and they may have some role in
4515 protecting the public interestâ€. The trend now is towards judicial
4516 review of contractual powers and the other activities of the
4517 government. Reference is made also to the recent decision of the Court
4518 of Appeal in Jones v. Swansea City Council, (1990) 1 WLR 54, where the
4519 court's clear inclination to the view that contractual powers should
4520 generally be reviewable is indicated, even though the Court of Appeal
4521 faltered at the last step and refrained from saying so. It is
4522 significant to note that emphasis now is on reviewability of every
4523 State action because it stems not from the nature of function, but
4524 from the public nature of the body exercising that function; and all
4525 powers possessed by a public authority, howsoever conferred, are
4526 possessed ‘solely in order that it may use them for the public good’.
4527 The only exception limiting the same is to be found in specific cases
4528 where such exclusion may be desirable for strong reasons of public
4529 policy. This, however, does not justify exclusion of reviewability in
4530 the contractual field involving the State since it is no longer a mere
4531 private activity to be excluded from public view or scrutiny.
4532
4533 27. Unlike a private party whose acts uninformed by reason and
4534 influenced by personal predilections in contractual matters may result
4535 in adverse consequences to it alone without affecting the public
4536 interest, any such act of the State or a public body even in this
4537 field would adversely affect the public interest. Every holder of a
4538 public office by virtue of which he acts on behalf of the State or
4539 public body is ultimately accountable to the people in whom the
4540 sovereignty vests. As such, all powers so vested in him are meant to
4541 be exercised for public good and promoting the public interest. This
4542 is equally true of all actions even in the field of contract. Thus,
4543 every holder of a public office is a trustee whose highest duty is to
4544 the people of the country and, therefore, every act of the holder of a
4545 public office, irrespective of the label classifying that act, is in
4546 discharge of public duty meant ultimately for public good. With the
4547 diversification of State activity in a Welfare State requiring the
4548 State to discharge its wide ranging functions even through its several
4549 instrumentalities, which requires entering into contracts also, it
4550 would be unreal and not pragmatic, apart from being unjustified to
4551 exclude contractual matters from the sphere of State actions required
4552 to be non-arbitrary and justified on the touchstone of Article 14.
4553
4554 28. Even assuming that it is necessary to import the concept
4555 of presence of some public element in a State action to attract
4556 Article 14 and permit judicial review, we have no hesitation in saying
4557 that the ultimate impact of all actions of the State or a public body
4558 being undoubtedly on public interest, the requisite public element for
4559 this purpose is present also in contractual matters. We, therefore,
4560 find it difficult and unrealistic to exclude the State actions in
4561 contractual matters, after the contract has been made, from the
4562 purview of judicial review to test its validity on the anvil of
4563 Article 14.
4564
4565 29. It can no longer be doubted at this point of time that
4566 Article 14 of the Constitution of India applies also to matters of
4567 governmental policy and if the policy or any action of the government,
4568 even in contractual matters, fails to satisfy the test of
4569 reasonableness, it would be unconstitutional. [See Ramana Dayaram
4570 Shetty v. International Airport Authority of India, (1979) 3 SCC 489,
4571 and Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4
4572 SCC 1]. In Col. A.S. Sangwan v. Union of India, (1980) Supp. SCC 559,
4573 while the discretion to change the policy in exercise of the executive
4574 power, when not trammelled by the statute or rule, was held to be
4575 wide, it was emphasised as imperative and implicit in Article 14 of
4576 the Constitution that a change in policy must be made fairly and
4577 should not give the impression that it was so done arbitrarily or by
4578 any ulterior criteria. The wide sweep of Article 14 and the
4579 requirement of every State action qualifying for its validity on this
4580 touchstone, irrespective of the field of activity of the State, has
4581 long been settled. Later decisions of this Court have reinforced the
4582 foundation of this tenet and it would be sufficient to refer only to
4583 two recent decisions of this Court for this purpose.
4584 ….. …..
4585
4586 33. No doubt, it is true, as indicated by us earlier, that
4587 there is a presumption of validity of the State action and the burden
4588 is on the person who alleges violation of Article 14 to prove the
4589 assertion. However, where no plausible reason or principle is
4590 indicated nor is it discernible and the impugned State action,
4591 therefore, appears to be ex facie arbitrary, the initial burden to
4592 prove the arbitrariness is discharged shifting onus on the State to
4593 justify its action as fair and reasonable. If the State is unable to
4594 produce material to justify its action as fair and reasonable, the
4595 burden on the person alleging arbitrariness must be held to be
4596 discharged. The scope of judicial review is limited as indicated in
4597 Dwarkadas Marfatia case (supra) to oversee the State action for the
4598 purpose of satisfying that it is not vitiated by the vice of
4599 arbitrariness and no more. The wisdom of the policy or the lack of it
4600 or the desirability of a better alternative is not within the
4601 permissible scope of judicial review in such cases. It is not for the
4602 courts to recast the policy or to substitute it with another which is
4603 considered to be more appropriate, once the attack on the ground of
4604 arbitrariness is successfully repelled by showing that the act which
4605 was done, was fair and reasonable in the facts and circumstances of
4606 the case. As indicated by Diplock, L.J., in Council of Civil Service
4607 Unions v. Minister for the Civil Service, (1984) 3 All ER 935, the
4608 power of judicial review is limited to the grounds of illegality,
4609 irrationality and procedural impropriety. In the case of
4610 arbitrariness, the defect of irrationality is obvious.
4611 ….. …..
4612
4613 36. The meaning and true import of arbitrariness is more easily
4614 visualized than precisely stated or defined. The question, whether an
4615 impugned act is arbitrary or not, is ultimately to be answered on the
4616 facts and in the circumstances of a given case. An obvious test to
4617 apply is to see whether there is any discernible principle emerging
4618 from the impugned act and if so, does it satisfy the test of
4619 reasonableness. Where a mode is prescribed for doing an act and there
4620 is no impediment in following that procedure, performance of the act
4621 otherwise and in a manner which does not disclose any discernible
4622 principle which is reasonable, may itself attract the vice of
4623 arbitrariness. Every State action must be informed by reason and it
4624 follows that an act uninformed by reason, is arbitrary. Rule of law
4625 contemplates governance by laws and not by humour, whims or caprices
4626 of the men to whom the governance is entrusted for the time being. It
4627 is trite that ‘be you ever so high, the laws are above you’. This is
4628 what men in power must remember, always.â€
4629
4630 (emphasis is mine)
4631
4632
4633The legal proposition laid down in the instant judgment may be summarized
4634as follows. Firstly, State action in the contractual field are meant for
4635public good and in public interest and are expected to be fair and just.
4636Secondly, it would be alien to the constitutional scheme to accept the
4637argument of exclusion of Article 14 of the Constitution of India in
4638contractual matters. Thirdly, the fact that a dispute falls in the domain
4639of contractual obligation, would make no difference, to a challenge raised
4640under Article 14 of the Constitution of India on the ground that the
4641impugned act is arbitrary, unfair and unreasonable. Fourthly, every State
4642action must be informed of reason and it follows that an act uninformed by
4643reason is arbitrary. Fifthly, where no plausible reason or principle is
4644indicated (or is discernible), and where the impugned action ex facie
4645appears to be arbitrary, the onus shifts on the State to justify its action
4646as fair and reasonable. Sixthly, every holder of public office is
4647accountable to the people in whom the sovereignty vests. All powers vested
4648in a public office, even in the field of contract, are meant to be
4649exercised for public good and for promoting public interest. And
4650Seventhly, Article 14 of the Constitution of India applies also to matters
4651of governmental policy even in contractual matters, and if the policy or
4652any action of the government fails to satisfy the test of reasonableness,
4653the same would be unconstitutional.
4654(h) Thereafter our attention was invited to the decision rendered in
4655Lucknow Development Authority Vs. M.K. Gupta, (1994) 1 SCC 243. Seriously,
4656the instant judgment has no direct bearing to the issue in hand. The
4657judgment determines whether compensation can be awarded to an aggrieved
4658consumer under the Consumer Protection Act, 1986. It also settles who
4659should shoulder the responsibility of paying the compensation awarded. But
4660all the same it has some interesting observations which may be noticed in
4661the context of the matter under deliberation. Portions of the observations
4662emphasized upon are being noticed below:
4663 “8. ….. Under our Constitution sovereignty vests in the people. Every
4664 limb of the constitutional machinery is obliged to be people oriented.
4665 No functionary in exercise of statutory power can claim immunity,
4666 except to the extent protected by the statute itself. Public
4667 authorities acting in violation of constitutional or statutory
4668 provisions oppressively are accountable for their behaviour before
4669 authorities created under the statute like the commission or the
4670 courts entrusted with responsibility of maintaining the rule of law.
4671 Each hierarchy in the Act is empowered to entertain a complaint by the
4672 consumer for value of the goods or services and compensation. The word
4673 ‘compensation’ is again of very wide connotation. It has not been
4674 defined in the Act. According to dictionary it means, ‘compensating or
4675 being compensated; thing given as recompense;’. In legal sense it may
4676 constitute actual loss or expected loss and may extend to physical,
4677 mental or even emotional suffering, insult or injury or loss.
4678 Therefore, when the Commission has been vested with the jurisdiction
4679 to award value of goods or services and compensation it has to be
4680 construed widely enabling the Commission to determine compensation for
4681 any loss or damage suffered by a consumer which in law is otherwise
4682 included in wide meaning of compensation. The provision in our opinion
4683 enables a consumer to claim and empowers the Commission to redress any
4684 injustice done to him. Any other construction would defeat the very
4685 purpose of the Act. The Commission or the Forum in the Act is thus
4686 entitled to award not only value of the goods or services but also to
4687 compensate a consumer for injustice suffered by him.
4688 ….. …..
4689 10. Who should pay the amount determined by the Commission for
4690 harassment and agony, the statutory authority or should it be realised
4691 from those who were responsible for it? Compensation as explained
4692 includes both the just equivalent for loss of goods or services and
4693 also for sufferance of injustice. For instance in Civil Appeal No. ...
4694 of 1993 arising out of SLP (Civil) No. 659 of 1991 the Commission
4695 directed the Bangalore Development Authority to pay Rs 2446 to the
4696 consumer for the expenses incurred by him in getting the lease-cum-
4697 sale agreement registered as it was additional expenditure for
4698 alternative site allotted to him. No misfeasance was found. The moment
4699 the authority came to know of the mistake committed by it, it took
4700 immediate action by alloting alternative site to the respondent. It
4701 was compensation for exact loss suffered by the respondent. It arose
4702 in due discharge of duties. For such acts or omissions the loss
4703 suffered has to be made good by the authority itself. But when the
4704 sufferance is due to mala fide or oppressive or capricious acts etc.
4705 of a public servant, then the nature of liability changes. The
4706 Commission under the Act could determine such amount if in its opinion
4707 the consumer suffered injury due to what is called misfeasance of the
4708 officers by the English Courts. Even in England where award of
4709 exemplary or aggravated damages for insult etc. to a person has now
4710 been held to be punitive, exception has been carved out if the injury
4711 is due to, ‘oppressive, arbitrary or unconstitutional action by
4712 servants of the Government’ (Salmond and Heuston on the Law of Torts).
4713 Misfeasance in public office is explained by Wade in his book on
4714 Administrative Law thus:
4715
4716
4717 “Even where there is no ministerial duty as above, and even
4718 where no recognised tort such as trespass, nuisance, or
4719 negligence is committed, public authorities or officers may be
4720 liable in damages for malicious, deliberate or injurious wrong-
4721 doing. There is thus a tort which has been called misfeasance in
4722 public office, and which includes malicious abuse of power,
4723 deliberate maladministration, and perhaps also other unlawful
4724 acts causing injury.†(p. 777)
4725
4726 The jurisdiction and power of the courts to indemnify a citizen for
4727 injury suffered due to abuse of power by public authorities is founded
4728 as observed by Lord Hailsham in Cassell & Co. Ltd. v. Broome, 1972 AC
4729 1027, on the principle that, ‘an award of exemplary damages can serve
4730 a useful purpose in vindicating the strength of law’. An ordinary
4731 citizen or a common man is hardly equipped to match the might of the
4732 State or its instrumentalities. That is provided by the rule of law.
4733 It acts as a check on arbitrary and capricious exercise of power. In
4734 Rookes v. Barnard, 1964 AC 1129, it was observed by Lord Devlin, ‘the
4735 servants of the government are also the servants of the people and the
4736 use of their power must always be subordinate to their duty of
4737 service’. A public functionary if he acts maliciously or oppressively
4738 and the exercise of power results in harassment and agony then it is
4739 not an exercise of power but its abuse. No law provides protection
4740 against it. He who is responsible for it must suffer it. Compensation
4741 or damage as explained earlier may arise even when the officer
4742 discharges his duty honestly and bona fide. But when it arises due to
4743 arbitrary or capricious behaviour then it loses its individual
4744 character and assumes social significance. Harassment of a common man
4745 by public authorities is socially abhorring and legally impermissible.
4746 It may harm him personally but the injury to society is far more
4747 grievous. Crime and corruption thrive and prosper in the society due
4748 to lack of public resistance. Nothing is more damaging than the
4749 feeling of helplessness. An ordinary citizen instead of complaining
4750 and fighting succumbs to the pressure of undesirable functioning in
4751 offices instead of standing against it. Therefore the award of
4752 compensation for harassment by public authorities not only compensates
4753 the individual, satisfies him personally but helps in curing social
4754 evil. It may result in improving the work culture and help in changing
4755 the outlook. Wade in his book Administrative Law has observed that it
4756 is to the credit of public authorities that there are simply few
4757 reported English decisions on this form of malpractice, namely,
4758 misfeasance in public offices which includes malicious use of power,
4759 deliberate maladministration and perhaps also other unlawful acts
4760 causing injury. One of the reasons for this appears to be development
4761 of law which, apart, from other factors succeeded in keeping a
4762 salutary check on the functioning in the government or semi-government
4763 offices by holding the officers personally responsible for their
4764 capricious or even ultra vires action resulting in injury or loss to a
4765 citizen by awarding damages against them. Various decisions rendered
4766 from time to time have been referred to by Wade on Misfeasance by
4767 Public Authorities. We shall refer to some of them to demonstrate how
4768 necessary it is for our society. In Ashby v. White, (1703) 2 LD Raym
4769 938, the House of Lords invoked the principle of ubi jus ibi remedium
4770 in favour of an elector who was wrongfully prevented from voting and
4771 decreed the claim of damages. The ratio of this decision has been
4772 applied and extended by English Courts in various situations.
4773
4774 11. Today the issue thus is not only of award of compensation
4775 but who should bear the brunt. The concept of authority and power
4776 exercised by public functionaries has many dimensions. It has
4777 undergone tremendous change with passage of time and change in socio-
4778 economic outlook. The authority empowered to function under a statute
4779 while exercising power discharges public duty. It has to act to
4780 subserve general welfare and common good. In discharging this duty
4781 honestly and bona fide, loss may accrue to any person. And he may
4782 claim compensation which may in circumstances be payable. But where
4783 the duty is performed capriciously or the exercise of power results in
4784 harassment and agony then the responsibility to pay the loss
4785 determined should be whose? In a modern society no authority can
4786 arrogate to itself the power to act in a manner which is arbitrary. It
4787 is unfortunate that matters which require immediate attention linger
4788 on and the man in the street is made to run from one end to other with
4789 no result. The culture of window clearance appears to be totally dead.
4790 Even in ordinary matters a common man who has neither the political
4791 backing nor the financial strength to match the inaction in public
4792 oriented departments gets frustrated and it erodes the credibility in
4793 the system. Public administration, no doubt involves a vast amount of
4794 administrative discretion which shields the action of administrative
4795 authority. But where it is found that exercise of discretion was mala
4796 fide and the complainant is entitled to compensation for mental and
4797 physical harassment then the officer can no more claim to be under
4798 protective cover. When a citizen seeks to recover compensation from a
4799 public authority in respect of injuries suffered by him for capricious
4800 exercise of power and the National Commission finds it duly proved
4801 then it has a statutory obligation to award the same. It was never
4802 more necessary than today when even social obligations are regulated
4803 by grant of statutory powers. The test of permissive form of grant is
4804 over. It is now imperative and implicit in the exercise of power that
4805 it should be for the sake of society. When the court directs payment
4806 of damages or compensation against the State the ultimate sufferer is
4807 the common man. It is the tax payers' money which is paid for inaction
4808 of those who are entrusted under the Act to discharge their duties in
4809 accordance with law. It is, therefore, necessary that the Commission
4810 when it is satisfied that a complainant is entitled to compensation
4811 for harassment or mental agony or oppression, which finding of course
4812 should be recorded carefully on material and convincing circumstances
4813 and not lightly, then it should further direct the department
4814 concerned to pay the amount to the complainant from the public fund
4815 immediately but to recover the same from those who are found
4816 responsible for such unpardonable behaviour by dividing it
4817 proportionately where there are more than one functionaries.â€
4818
4819 (emphasis is mine)
4820
4821The judgment brings out the foundational principle of executive governance.
4822 The said foundational principle is based on the realization that
4823sovereignty vests in the people. The judgment therefore records that every
4824limb of the constitutional machinery is obliged to be people oriented. The
4825fundamental principle brought out by the judgment is, that a public
4826authority exercising public power discharges a public duty, and therefore,
4827has to subserve general welfare and common good. All power should be
4828exercised for the sake of society. The issue which was the subject matter
4829of consideration, and has been noticed along with the citation, was decided
4830by concluding that compensation shall be payable by the State (or its
4831instrumentality) where inappropriate deprivation on account of improper
4832exercise of discretion has resulted in a loss, compensation is payable by
4833the State (or its instrumentality). But where the public functionary
4834exercises his discretion capriciously, or for considerations which are
4835malafide, the public functionary himself must shoulder the burden of
4836compensation held as payable. The reason for shifting the onus to the
4837public functionary deserves notice. This Court felt, that when a court
4838directs payment of damages or compensation against the State, the ultimate
4839sufferer is the common man, because it is tax payers money out of which
4840damages and costs are paid.
4841(i) Next cited for our consideration was the judgment in Common Cause,
4842A Registered Society Vs. Union of India & Ors., (1996) 6 SCC 530. The
4843instant case dealt with a challenge to the allotment of retail outlets for
4844petroleum products (petrol pumps). Allotment was made in favour of 15
4845persons on the ground of poverty or unemployment. Rest of the relevant
4846facts emerge from the extracts from the judgment reproduced below:
4847 “24. The orders of the Minister reproduced above read: “the
4848 applicant has no regular income to support herself and her familyâ€,
4849 “the applicant is an educated lady and belongs to Scheduled Tribe
4850 communityâ€, “the applicant is unemployed and has no regular source of
4851 incomeâ€, “the applicant is an uneducated, unemployed Scheduled Tribe
4852 youth without regular source of livelihoodâ€, “the applicant is a
4853 housewife whose family is facing difficult financial circumstancesâ€
4854 etc. etc. There would be literally millions of people in the country
4855 having these circumstances or worse. There is no justification
4856 whatsoever to pick up these persons except that they happen to have
4857 won the favour of the Minister on mala fide considerations. None of
4858 these cases fall within the categories placed before this Court in
4859 Centre for Public Interest Litigation v. Union of India, 1995 Supp.
4860 (3) SCC 382, but even if we assume for argument sake that these cases
4861 fall in some of those or similar guidelines the exercise of discretion
4862 was wholly arbitrary. Such a discretionary power which is capable of
4863 being exercised arbitrarily is not permitted by Article 14 of the
4864 Constitution of India. While Article 14 permits a reasonable
4865 classification having a rational nexus to the objective sought to be
4866 achieved, it does not permit the power to pick and choose arbitrarily
4867 out of several persons falling in the same category. A transparent and
4868 objective criteria/procedure has to be evolved so that the choice
4869 among the members belonging to the same class or category is based on
4870 reason, fair play and non-arbitrariness. It is essential to lay down
4871 as a matter of policy as to how preferences would be assigned between
4872 two persons falling in the same category. If there are two eminent
4873 sportsmen in distress and only one petrol pump is available, there
4874 should be clear, transparent and objective criteria/procedure to
4875 indicate who out of the two is to be preferred. Lack of transparency
4876 in the system promotes nepotism and arbitrariness. It is absolutely
4877 essential that the entire system should be transparent right from the
4878 stage of calling for the applications up to the stage of passing the
4879 orders of allotment. The names of the allottees, the orders and the
4880 reasons for allotment should be available for public knowledge and
4881 scrutiny. Mr Shanti Bhushan has suggested that the petrol pumps,
4882 agencies etc. may be allotted by public auction — category wise
4883 amongst the eligible and objectively selected applicants. We do not
4884 wish to impose any procedure on the Government. It is a matter of
4885 policy for the Government to lay down. We, however, direct that any
4886 procedure laid down by the Government must be transparent, just, fair
4887 and non-arbitrary.
4888 ….. …..
4889
4890 26. With the change in socio-economic outlook, the public
4891 servants are being entrusted with more and more discretionary powers
4892 even in the field of distribution of government wealth in various
4893 forms. We take it to be perfectly clear, that if a public servant
4894 abuses his office either by an act of omission or commission, and the
4895 consequence of that is injury to an individual or loss of public
4896 property, an action may be maintained against such public servant. No
4897 public servant can say “you may set aside an order on the ground of
4898 mala fide but you cannot hold me personally liableâ€. No public servant
4899 can arrogate to himself the power to act in a manner which is
4900 arbitrary.â€
4901
4902 (emphasis is mine)
4903
4904
4905This judgment has a direct bearing on the controversy in hand. It clearly
4906delineates the manner in which discretion must be exercised, specially when
4907the object of discretion is State largesse. A perusal of the observations
4908reproduced above reveal, that the State largesse under reference (petrol
4909pumps) were to be allotted on the ground of poverty and unemployment. Such
4910an allotment was obviously based on a policy to “best subserve the common
4911good†enshrined in Article 39(b) of the Constitution of India. This Court
4912found no fault in the policy itself. The fault was with the manner of
4913giving effect to the policy. It was held, that a transparent and objective
4914criteria/procedure has to be evolved, so that the choice out of those who
4915are eligible can be made fairly and without any arbitrariness. The
4916exercise of discretion which enables the competent authority to arbitrarily
4917pick and choose out of several persons falling in the same category,
4918according to the above decision would be arbitrary, and as such violative
4919of Article 14 of the Constitution of India.
4920(j) Out of the more recent judgments our attention was invited to
4921Meerut Development Authority Vs. Association of Management Studies & Anr.
4922etc., (2009) 6 SCC 171. The controversy adjudicated upon in this case
4923emerges from the decision of the appellant to allotment of 2 plots of land.
4924 For the said purpose the appellant invited tenders from interested
4925persons. In response the respondent submitted its tender. After the
4926allotment of one of the plots to the respondent, the respondent raised an
4927objection that the appellant had fixed the reserved price of the second
4928plot at a rate much higher than its adjoining plots. The respondent
4929assailed the action of the appellant in issuing a fresh advertisement for
4930the allotment of the second plot. In the course of determination of the
4931aforesaid controversy this Court held:
4932 “26. A tender is an offer. It is something which invites and is
4933 communicated to notify acceptance. Broadly stated it must be
4934 unconditional; must be in the proper form, the person by whom tender
4935 is made must be able to and willing to perform his obligations. The
4936 terms of the invitation to tender cannot be open to judicial scrutiny
4937 because the invitation to tender is in the realm of contract. However,
4938 a limited judicial review may be available in cases where it is
4939 established that the terms of the invitation to tender were so tailor-
4940 made to suit the convenience of any particular person with a view to
4941 eliminate all others from participating in the bidding process.
4942
4943
4944 27. The bidders participating in the tender process have no
4945 other right except the right to equality and fair treatment in the
4946 matter of evaluation of competitive bids offered by interested persons
4947 in response to notice inviting tenders in a transparent manner and
4948 free from hidden agenda. One cannot challenge the terms and conditions
4949 of the tender except on the abovestated ground, the reason being the
4950 terms of the invitation to tender are in the realm of the contract. No
4951 bidder is entitled as a matter of right to insist the authority
4952 inviting tenders to enter into further negotiations unless the terms
4953 and conditions of notice so provided for such negotiations.
4954
4955
4956 28. It is so well settled in law and needs no restatement at
4957 our hands that disposal of the public property by the State or its
4958 instrumentalities partakes the character of a trust. The methods to be
4959 adopted for disposal of public property must be fair and transparent
4960 providing an opportunity to all the interested persons to participate
4961 in the process.
4962
4963
4964 29. The Authority has the right not to accept the highest bid
4965 and even to prefer a tender other than the highest bidder, if there
4966 exist good and sufficient reasons, such as, the highest bid not
4967 representing the market price but there cannot be any doubt that the
4968 Authority's action in accepting or refusing the bid must be free from
4969 arbitrariness or favouritism.
4970 ….. …..
4971
4972
4973 39. The law has been succinctly stated by Wade in his
4974 treatise, Administrative Law:
4975
4976 “The powers of public authorities are therefore essentially different
4977 from those of private persons. A man making his will may, subject to
4978 any rights of his dependants, dispose of his property just as he may
4979 wish. He may act out of malice or a spirit of revenge, but in law this
4980 does not affect his exercise of his power. In the same way a private
4981 person has an absolute power to allow whom he likes to use his land,
4982 to release a debtor, or, where the law permits, to evict a tenant,
4983 regardless of his motives. This is unfettered discretion. But a public
4984 authority may do none of these things unless it acts reasonably and in
4985 good faith and upon lawful and relevant grounds of public interest. So
4986 a city council acted unlawfully when it refused unreasonably to let a
4987 local rugby football club use the city's sports ground, though a
4988 private owner could of course have refused with impunity. Nor may a
4989 local authority arbitrarily release debtors, and if it evicts tenants,
4990 even though in accordance with a contract, it must act reasonably and
4991 ‘within the limits of fair dealing’. The whole conception of
4992 unfettered discretion is inappropriate to a public authority, which
4993 possesses powers solely in order that it may use them for the public
4994 good.â€, Administrative Law, 9th Edn. H.W.R. Wade and C.F. Forsyth.
4995
4996 40. There is no difficulty to hold that the authorities owe a
4997 duty to act fairly but it is equally well settled in judicial review,
4998 the court is not concerned with the merits or correctness of the
4999 decision, but with the manner in which the decision is taken or the
5000 order is made. The court cannot substitute its own opinion for the
5001 opinion of the authority deciding the matter.
5002
5003 41. The distinction between appellate power and a judicial
5004 review is well known but needs reiteration. By way of judicial review,
5005 the court cannot examine the details of the terms of the contract
5006 which have been entered into by the public bodies or the State. The
5007 courts have inherent limitations on the scope of any such enquiry. If
5008 the contract has been entered into without ignoring the procedure
5009 which can be said to be basic in nature and after an objective
5010 consideration of different options available taking into account the
5011 interest of the State and the public, then the court cannot act as an
5012 appellate court by substituting its opinion in respect of selection
5013 made for entering into such contract. But at the same time the courts
5014 can certainly examine whether the “decision-making process†was
5015 reasonable, rational, not arbitrary and violative of Article 14. (See
5016 Sterling Computers Ltd. Vs. M&N Publications Ltd., (1993) 1 SCC 445).
5017
5018
5019
5020 ….. …..
5021
5022 50. We are, however, of the opinion that the effort, if any,
5023 made by MDA to augment its financial resources and revenue itself
5024 cannot be said to be an unreasonable decision. It is well said that
5025 the struggle to get for the State the full value of its resources is
5026 particularly pronounced in the sale of State-owned natural assets to
5027 the private sector. Whenever the Government or the authorities get
5028 less than the full value of the asset, the country is being cheated;
5029 there is a simple transfer of wealth from the citizens as a whole to
5030 whoever gets the assets “at a discountâ€. Most of the times the wealth
5031 of the State goes to the individuals within the country rather than to
5032 multinational corporations; still, wealth slips away that ought to
5033 belong to the nation as a whole.
5034
5035 (emphasis is mine)
5036
5037In the instant judgment this Court laid down, that in a tender process, a
5038tenderer has the right to fair treatment and the right to be treated
5039equally. The evaluation of tenders, it has been held, must be transparent
5040and free from any hidden agenda. The view expressed in Wades Tretise on
5041Administrative Law, that public authorities cannot act in a manner which is
5042open to private persons, was accepted. Public authorities, it was held,
5043can neither act out of malice nor a spirit of revenge. A public authority
5044is ordained to act, reasonably and in good faith and upon lawful and
5045relevant grounds of public interest. Most importantly it was concluded,
5046that the State “must†get the “full value†of the resources, specially when
5047State owned assets are passed over to private individuals/entities. Not
5048stopping there the Court added further, that whoever pays less than the
5049full value, get the assets belonging to the citizens “at a discountâ€, and
5050as such the wealth that belongs to the nation slips away.
5051
5052(k) Also cited for our consideration was the judgment in Reliance
5053Natural Resources Ltd. Vs. Reliance Industries Ltd. etc., (2010) 7 SCC 1.
5054The Court’s attention was invited to the following:
5055 “33. Mr R.F. Nariman, learned Senior Counsel appearing for RIL
5056 concentrated his argument with reference to Sections 391 to 394 of the
5057 Companies Act. According to him, Section 392 of the Act had no
5058 predecessors either in English law or in the Companies Act of 1913.
5059 The reason why the legislature appears to have felt the necessity of
5060 enacting Section 392 is to bring Section 391 on a par with Section
5061 394. Section 394 applies only to companies which are reconstructing
5062 and or amalgamating, involving the transfer of assets and liabilities
5063 to another company. It is thus, applicable to a species of the genus
5064 of company referred to under Section 391. Section 394, sub-section 1
5065 specifically gives the Company Court the power not merely to sanction
5066 the compromise or arrangement but also gives the Company Court the
5067 power, by a subsequent order, to make provisions for “such incidental,
5068 consequential and supplemental matters as are necessary to secure that
5069 the reconstruction or amalgamation shall be fully and effectively
5070 carried out†[Section 394(1)(vi)]. This power is absent in Section
5071 391, so that companies falling within Section 391, but not within
5072 Section 394, would not be amenable to the Company Court's jurisdiction
5073 to enforce a compromise or arrangement made under Section 391 and to
5074 see that they are fully carried out. Hence, the power under Section
5075 392 has to be understood in the above context, and is of the same
5076 quality as the power expressly given to the Company Court post-
5077 sanction under Section 394.
5078 ….. …..
5079
5080
5081 122. From the above analysis, the following are the broad
5082 sustainable conclusions which can be derived from the position of the
5083 Union:
5084
5085 (1) The natural resources are vested with the Government as a matter
5086 of trust in the name of the people of India. Thus, it is the
5087 solemn duty of the State to protect the national interest.
5088 (2) Even though exploration, extraction and exploitation of
5089 natural resources are within the domain of governmental
5090 function, the Government has decided to privatise some of its
5091 functions. For this reason, the constitutional restrictions on
5092 the Government would equally apply to the private players in
5093 this process. Natural resources must always be used in the
5094 interests of the country, and not private interests.
5095 (3) The broader constitutional principles, the statutory
5096 scheme as well as the proper interpretation of the PSC mandates
5097 the Government to determine the price of the gas before it is
5098 supplied by the contractor.
5099 (4) The policy of the Government, including the gas
5100 utilisation policy and the decision of EGOM would be applicable
5101 to the pricing in the present case.
5102 (5) The Government cannot be divested of its supervisory
5103 powers to regulate the supply and distribution of gas.
5104 ….. …..
5105
5106
5107 128. In a constitutional democracy like ours, the national
5108 assets belong to the people. The Government holds such natural
5109 resources in trust. Legally, therefore, the Government owns such
5110 assets for the purposes of developing them in the interests of the
5111 people. In the present case, the Government owns the gas till it
5112 reaches its ultimate consumer. A mechanism is provided under the PSC
5113 between the Government and the contractor (RIL, in the present case).
5114 The PSC shall override any other contractual obligation between the
5115 contractor and any other party.
5116 ….. …..
5117
5118
5119 243. The structure of our Constitution is not such that it
5120 permits the reading of each of the Directive Principles of State
5121 Policy, that have been framed for the achievement of conditions of
5122 social, economic and political justice in isolation. The structural
5123 lines of logic, of ethical imperatives of the State and the lessons of
5124 history flow from one to the other. In the quest for national
5125 development and unity of the nation, it was felt that the “ownership
5126 and control of the material resources of the community†if distributed
5127 in a manner that does not result in common good, it would lead to
5128 derogation from the quest for national development and the unity of
5129 the nation. Consequently, Article 39(b) of the Constitution should be
5130 construed in light of Article 38 of the Constitution and be understood
5131 as placing an affirmative obligation upon the State to ensure that
5132 distribution of material resources of the community does not result in
5133 heightening of inequalities amongst people and amongst regions. In
5134 line with the logic of the constitutional matrix just enunciated, and
5135 in the sweep of the quest for national development and unity, is
5136 another provision. Inasmuch as inequalities between people and regions
5137 of the nation are inimical to those goals, Article 39(c) posits that
5138 the “operation of the economic system†when left unattended and
5139 unregulated, leads to “concentration of wealth and means of production
5140 to the common detriment†and commands the State to ensure that the
5141 same does not occur.
5142 ….. …..
5143
5144
5145 250 We hold that with respect to the natural resources
5146 extracted and exploited from the geographic zones specified in Article
5147 297 the Union may not:
5148 (1) transfer title of those resources after their extraction
5149 unless the Union receives just and proper compensation for the
5150 same;
5151 (2) allow a situation to develop wherein the various users in
5152 different sectors could potentially be deprived of access to
5153 such resources;
5154 (3) allow the extraction of such resources without a clear
5155 policy statement of conservation, which takes into account total
5156 domestic availability, the requisite balancing of current needs
5157 with those of future generations, and also India's security
5158 requirements;
5159 (4) allow the extraction and distribution without periodic
5160 evaluation of the current distribution and making an assessment
5161 of how greater equity can be achieved, as between sectors and
5162 also between regions;
5163 (5) allow a contractor or any other agency to extract and
5164 distribute the resources without the explicit permission of the
5165 Union of India, which permission can be granted only pursuant to
5166 a rationally framed utilisation policy; and
5167 (6) no end user may be given any guarantee for continued
5168 access and of use beyond a period to be specified by the
5169 Government.
5170
5171 Any contract including a PSC which does not take into its ambit stated
5172 principles may itself become vulnerable and fall foul of Article 14 of
5173 the Constitution.
5174
5175 (emphasis is mine)
5176
5177
5178Interestingly, in this case the position adopted by the Union needs to be
5179highlighted. This Court was informed, that natural resources are vested in
5180the Government, as a matter of trust, in the name of the people of India.
5181And that, it was the solemn duty of the State to protect the national
5182interest. The most significant assertion expressed on behalf of the Union
5183was, that natural resources must always be used in the interest of the
5184country and not in private interest. It is in the background of the stance
5185adopted by the Union, that this Court issued the necessary directions
5186extracted above.
5187(l) Last of all reference was made to the decision of this Court in
5188Akhil Bhartiya Upbhokta Congress Vs. State of Madhya Pradesh & Ors., (2011)
51895 SCC 29:
5190 65. What needs to be emphasised is that the State and/or its
5191 agencies/instrumentalities cannot give largesse to any person
5192 according to the sweet will and whims of the political entities and/or
5193 officers of the State. Every action/decision of the State and/or its
5194 agencies/instrumentalities to give largesse or confer benefit must be
5195 founded on a sound, transparent, discernible and well-defined policy,
5196 which shall be made known to the public by publication in the Official
5197 Gazette and other recognised modes of publicity and such policy must
5198 be implemented/executed by adopting a non-discriminatory and non-
5199 arbitrary method irrespective of the class or category of persons
5200 proposed to be benefited by the policy. The distribution of largesse
5201 like allotment of land, grant of quota, permit licence, etc. by the
5202 State and its agencies/instrumentalities should always be done in a
5203 fair and equitable manner and the element of favouritism or nepotism
5204 shall not influence the exercise of discretion, if any, conferred upon
5205 the particular functionary or officer of the State.
5206
5207
5208 66. We may add that there cannot be any policy, much less, a rational
5209 policy of allotting land on the basis of applications made by
5210 individuals, bodies, organisations or institutions dehors an
5211 invitation or advertisement by the State or its
5212 agency/instrumentality. By entertaining applications made by
5213 individuals, organisations or institutions for allotment of land or
5214 for grant of any other type of largesse the State cannot exclude other
5215 eligible persons from lodging competing claim. Any allotment of land
5216 or grant of other form of largesse by the State or its
5217 agencies/instrumentalities by treating the exercise as a private
5218 venture is liable to be treated as arbitrary, discriminatory and an
5219 act of favouritism and/or nepotism violating the soul of the equality
5220 clause embodied in Article 14 of the Constitution.
5221
5222
5223 67. This, however, does not mean that the State can never allot land
5224 to the institutions/organisations engaged in educational, cultural,
5225 social or philanthropic activities or are rendering service to the
5226 society except by way of auction. Nevertheless, it is necessary to
5227 observe that once a piece of land is earmarked or identified for
5228 allotment to institutions/organisations engaged in any such activity,
5229 the actual exercise of allotment must be done in a manner consistent
5230 with the doctrine of equality. The competent authority should, as a
5231 matter of course, issue an advertisement incorporating therein the
5232 conditions of eligibility so as to enable all similarly situated
5233 eligible persons, institutions/organisations to participate in the
5234 process of allotment, whether by way of auction or otherwise. In a
5235 given case the Government may allot land at a fixed price but in that
5236 case also allotment must be preceded by a wholesome exercise
5237 consistent with Article 14 of the Constitution.â€
5238
5239 (emphasis is mine)
5240
5241
5242The observations of this Court in the judgment extracted above neither need
5243any summarization, nor any further elaboration.
5244(m) Surely, there cannot be any escape from a reference to the
5245judgment rendered by this Court in Centre for Public Interest Litigation
5246and others v. Union of India & Ors., (2012) 3 SCC 1, which according to the
5247preamble of the Presidential reference, seems to be the reason why the
5248reference came to be made. During the course of hearing extensive debate,
5249between rival parties, ensued on the effect of the observations recorded by
5250this Court in paragraphs 95 and 96 of the judgment. The aforesaid
5251paragraphs are being extracted hereinbelow:
5252
5253 “95. This Court has repeatedly held that wherever a contract is to be
5254 awarded or a licence is to be given, the public authority must adopt a
5255 transparent and fair method for making selections so that all eligible
5256 persons get a fair opportunity of competition. To put it differently,
5257 the State and its agencies/instrumentalities must always adopt a
5258 rational method for disposal of public property and no attempt should
5259 be made to scuttle the claim of worthy applicants. When it comes to
5260 alienation of scarce natural resources like spectrum etc., it is the
5261 burden of the State to ensure that a non-discriminatory method is
5262 adopted for distribution and alienation, which would necessarily
5263 result in protection of national/public interest.
5264
5265 96. In our view, a duly publicized auction conducted fairly and
5266 impartially is perhaps the best method for discharging this burden and
5267 the methods like first-come-first-served when used for alienation of
5268 natural resources/public property are likely to be misused by
5269 unscrupulous people who are only interested in garnering maximum
5270 financial benefit and have no respect for the constitutional ethos and
5271 values. In other words, while transferring or alienating the natural
5272 resources, the State is duty bound to adopt the method of auction by
5273 giving wide publicity so that all eligible persons can participate in
5274 the process.â€
5275
5276
5277In so far as the controversy in the aforesaid case is concerned, it would
5278be relevant to mention that the petitioner approached this Court by
5279invoking the extraordinary writ jurisdiction of this Hon’ble Court under
5280Article 32 of the Constitution of India. The petition came to be filed as
5281a cause in public interest. The reason which promoted the petitioner to
5282approach this Court was that the Union had adopted the policy of “first
5283come first serve†for allocation of licences of spectrum. It was alleged
5284that the aforesaid policy involved the element of pure chance or accident.
5285It was asserted on behalf of the petitioners that invocation of the
5286principles of “first come first serve†for permission to use natural
5287resources had inherently dangerous implications. The implications
5288expressed by the petitioners were duly taken into consideration and the
5289plea raised on behalf of the petitioners was accepted. Thereupon, the
5290following directions came to be issued in paragraph 102 of the judgment:
5291 “102. In the result, the writ petitions are allowed in the following
5292 terms:
5293
5294 (i) The licences granted to the private Respondents on or
5295 after 10.1.2008 pursuant to two press releases issued on
5296 10.1.2008 and subsequent allocation of spectrum to the licensees
5297 are declared illegal and are quashed.
5298
5299 (ii) The above direction shall become operative after four
5300 months.
5301
5302 (iii) Keeping in view the decision taken by the Central
5303 Government in 2011, TRAI shall make fresh recommendations for
5304 grant of licence and allocation of spectrum in 2G band in 22
5305 Service Areas by auction, as was done for allocation of spectrum
5306 in 3G band.
5307
5308 (iv) The Central Government shall consider the recommendations
5309 of TRAI and take appropriate decision within next one month and
5310 fresh licences be granted by auction.
5311
5312 (v) Respondent Nos. 2, 3 and 9 who have been benefited at the
5313 cost of Public Exchequer by a wholly arbitrary and
5314 unconstitutional action taken by the DoT for grant of UAS
5315 Licences and allocation of spectrum in 2G band and who off-
5316 loaded their stakes for many thousand crores in the name of
5317 fresh infusion of equity or transfer of equity shall pay cost of
5318 Rs. 5 crores each. Respondent Nos. 4, 6, 7 and 10 shall pay cost
5319 of Rs. 50 lakhs each because they too had been benefited by the
5320 wholly arbitrary and unconstitutional exercise undertaken by the
5321 DoT for grant of UAS Licences and allocation of spectrum in 2G
5322 band. We have not imposed cost on the Respondents who had
5323 submitted their applications in 2004 and 2006 and whose
5324 applications were kept pending till 2007.
5325
5326 (vi) Within four months, 50% of the cost shall be deposited
5327 with the Supreme Court Legal Services Committee for being used
5328 for providing legal aid to poor and indigent litigants. The
5329 remaining 50% cost shall be deposited in the funds created for
5330 Resettlement and Welfare Schemes of the Ministry of Defence.
5331
5332 (vii) However, it is made clear that the observations made in
5333 this judgment shall not, in any manner, affect the pending
5334 investigation by the CBI, Directorate of Enforcement and Ors.
5335 agencies or cause prejudice to those who are facing prosecution
5336 in the cases registered by the CBI or who may face prosecution
5337 on the basis of chargesheet(s) which may be filed by the CBI in
5338 future and the Special Judge, CBI shall decide the matter
5339 uninfluenced by this judgment. We also make it clear that this
5340 judgment shall not prejudice any person in the action which may
5341 be taken by other investigating agencies under Income Tax Act,
5342 1961, Prevention of Money Laundering Act, 2002 and other similar
5343 statutes.â€
5344
5345It needs to be noticed that a review petition came to be filed by the Union
5346against the instant judgment. The same, however, came to be withdrawn
5347without any reservations. During the course of hearing of the instant
5348petition, the Learned Attorney General for India informed this Court that
5349the Union had decided to give effect to the judgment, in so far as the
5350allocation of spectrum is concerned. In the above view of the matter, one
5351only needs to notice the observations recorded by this Court in paragraphs
535295 and 96 extracted hereinabove. A perusal of the aforesaid paragraphs
5353reveals, that in line with the judgments rendered by this Court
5354interpreting Article 14 of the Constitution of India, this Court yet again
5355held, that while awarding a contact or a licence, the executive must adopt
5356a transparent and fair method. The executive must ensure, that all
5357eligible persons get a fair opportunity to compete. For awarding contracts
5358or licences, the executive should adopt a rational method, so as to ensure
5359that claims of worthy applicants are not scuttled. On the subject of
5360natural resources like spectrum, etc., this Court held that it was the
5361bounden duty of the State to ensure the adoption of a non-discriminatory
5362method which would result in protection of national/public interest. This
5363Court also expressed the view that “perhaps†the best method for doing so
5364would be through a duly publicized auction conducted fairly and
5365impartially. Thus viewed, it was affirmed, that the State was duty bound
5366to adopt the method of auction by giving wide publication while alienating
5367natural resources, so as to ensure that all eligible persons can
5368participate in the process.
53697. The parameters laid by this Court on the scope of applicability of
5370Article 14 of the Constitution of India, in matters where the State, its
5371instrumentalities, and their functionaries, are engaged in contractual
5372obligations (as they emerge from the judgments extracted in paragraph 6
5373above) are being briefly paraphrased. For an action to be able to
5374withstand the test of Article 14 of the Constitution of India, it has
5375already been expressed in the “main opinion†that it has to be fair,
5376reasonable, non-discriminatory, transparent, non-capricious, unbiased,
5377without favouritism or nepotism, in pursuit of promotion of healthy
5378competition and equitable treatment. The judgments referred to, endorse
5379all those requirements where the State, its instrumentalities, and their
5380functionaries, are engaged in contractual transactions. Therefore, all
5381“governmental policy†drawn with reference to contractual matters, it has
5382been held, must conform to the aforesaid parameters. While Article 14 of
5383the Constitution of India permits a reasonable classification having a
5384rational nexus to the object sought to be achieved, it does not permit the
5385power of pick and choose arbitrarily out of several persons falling in the
5386same category. Therefore, a criteria or procedure has to be adopted so
5387that the choice among those falling in the same category is based on
5388reason, fair play and non-arbitrariness. Even if there are only two
5389contenders falling in the zone of consideration, there should be a clear,
5390transparent and objective criteria or procedure to indicate which out of
5391the two is to be preferred. It is this, which would ensure transparency.
53928. Another aspect which emerges from the judgments (extracted in
5393paragraph 6 above) is that, the State, its instrumentalities and their
5394functionaries, while exercising their executive power in matters of trade
5395or business etc. including making of contracts, should be mindful of public
5396interest, public purpose and public good. This is so, because every holder
5397of public office by virtue of which he acts on behalf of the State, or its
5398instrumentalities, is ultimately accountable to the people in whom
5399sovereignty vests. As such, all powers vested in the State are meant to be
5400exercised for public good and in public interest. Therefore, the question
5401of unfettered discretion in an executive authority, just does not arise.
5402The fetters on discretion are - a clear, transparent and objective criteria
5403or procedure which promotes public interest, public purpose and public
5404good. A public authority is ordained, therefore to act, reasonably and in
5405good faith and upon lawful and relevant grounds of public interest.
54069. Observations recorded by this Court on the subject of revenue
5407returns, during the course of the States engagements in commercial ventures
5408(emerging from the judgments extracted in paragraph 6 above), are being
5409summarized hereunder. It has been held, where the Sate is simply selling a
5410product, there can be no doubt that the State must endeavour to obtain the
5411highest price, subject of course to any other overriding public
5412consideration. The validity of a trading agreement executed by the
5413Government has to be judged by the test, that the entire benefit arising
5414therefrom enures to the State, and is not used as a cloak for conferring
5415private benefits on a limited class of persons. If a contract has been
5416entered into, taking in account the interest of the State and the public,
5417the same would not be interfered with by a Court, by assuming the position
5418of an appellate authority. The endeavour to get the State the “full valueâ€
5419of its resources, it has been held, is particularly pronounced in the sale
5420of State owned natural resources, to the private sector. Whenever the
5421State gets less than the full value of the assets, it has been inferred,
5422that the country has been cheated, in a much as, it amounts to a simple
5423transfer of wealth, from the citizens as a whole, to whoever gets the
5424assets at a discount. And in that sense, it has been concluded, the wealth
5425that belongs to the nation is lost. In Reliance Natural Resources Ltd.’s
5426case (supra), the Union of India adopted the position, that natural
5427resources are vested in the State as a matter of trust, for and on behalf
5428of the citizens of the country. It was also acknowledged, that it was the
5429solemn duty of the State, to protect those natural resources. More
5430importantly, it was accepted, that natural resources must always be used in
5431the common interest of the citizens of the country, and not for private
5432interest.
543310. Based on the legal/constitutional parameters/requirements culled
5434out in the preceding three paragraphs, I shall venture an opinion on
5435whether there are circumstances in which natural resources ought to be
5436disposed of only by ensuring maximum returns. For this, I shall place
5437reliance on a conclusion drawn in the “main opinionâ€, namely, “Distribution
5438of natural resources is a policy decision, and the means adopted for the
5439same are thus, executive prerogatives. However, when such a policy
5440decision is not backed by a social or welfare purpose, and precious and
5441scarce natural resources are alienated for commercial pursuits of profit
5442maximizing private entrepreneurs, adoption of means other than those that
5443are competitive and maximize revenue, may be arbitrary and face the wrath
5444of Article 14 of the Constitution.†(refer to paragraph 149 of the “main
5445opinionâ€). I am in respectful agreement with the aforesaid conclusion, and
5446would accordingly opine, that when natural resources are made available by
5447the State to private persons for commercial exploitation exclusively for
5448their individual gains, the State’s endeavour must be towards maximization
5449of revenue returns. This alone would ensure, that the fundamental right
5450enshrined in Article 14 of the Constitution of India (assuring equality
5451before the law and equal protection of the laws), and the directive
5452principle contained in Article 39(b) of the Constitution of India (that
5453material resources of the community are so distributed as best to subserve
5454the common good), have been extended to the citizens of the country.
545511. A similar conclusion would also emerge in a slightly different
5456situation. This Court in a case dealing with a challenge to the allotment
5457of retail outlets for petroleum products [Common Cause, A Registered
5458Society Vs. Union of India & Ors., (1996) 6 SCC 530] has held, that Article
545914 of the Constitution of India, does not countenance discretionary power
5460which is capable of being exercised arbitrarily. While accepting that
5461Article 14 of the Constitution of India permits a reasonable classification
5462having a rational nexus to the object sought to be achieved, it was held
5463that Article 14 of the Constitution of India does not permit the State to
5464pick and choose arbitrarily out of several persons falling in the same
5465category. A transparent and objective criteria/procedure has to be evolved
5466so that the choice amongst those belonging to the same class or category is
5467based on reason, fair play, and non-arbitrariness. Envisage a situation as
5468the one expressed above, where by reasonable classification based on some
5469public purpose, the choice is limited to a set of private persons, amongst
5470whom alone, the State has decided to dispose of natural resources. Herein
5471again, in my opinion, if the participation of private persons is for
5472commercial exploitation exclusively for their individual gains, then the
5473State’s endeavour to maximize revenue alone, would satisfy the
5474constitutional mandate contained in Articles 14 and 39(b) of the
5475Constitution of India.
547612. In the “main opinionâ€, it has been concluded, that auction is not
5477a constitutional mandate, in the nature of an absolute principle which has
5478to be applied in all situations. And as such, auction cannot be read into
5479Article 14 of the Constitution of India, so as to be applied in all
5480situations (refer to paragraph 107 of the “main opinionâ€). Auction is
5481certainly not a constitutional mandate in the manner expressed, but it can
5482surely be applied in some situations to maximize revenue returns, to
5483satisfy legal and constitutional requirements. It is, therefore, that I
5484have chosen to express the manner of disposal of natural resources by using
5485the words “maximization of revenue†in place of the term “auctionâ€, in the
5486foregoing two paragraphs. But it may be pointed out, the Attorney General
5487for India had acknowledged during the course of hearing, that auction by
5488way of competitive bidding was certainly an indisputable means, by which
5489maximization of revenue returns is assured (in this behalf other
5490observations recorded by me in paragraph 3 above may also be kept in mind).
5491 In the aforesaid view of the matter, all that needs to be stated is, that
5492if the State arrives at the conclusion, in a given situation, that maximum
5493revenue would be earned by auction of the natural resource in question,
5494then that alone would be the process which it would have to adopt, in the
5495situations contemplated in the foregoing two paragraphs.
5496
549713. One is compelled to take judicial notice of the fact, that
5498allotment of natural resources is an issue of extensive debate in the
5499country, so much so, that the issue of allocation of such resources had
5500recently resulted in a washout of two sessions of Parliament. The current
5501debate on allotment of material resources has been prompted by a report
5502submitted by the Comptroller and Auditor General, asserting extensive loss
5503in revenue based on inappropriate allocations. The report it is alleged,
5504points out that private and public sector companies had made windfall gains
5505because the process of competitive bidding had not been adopted. The
5506country witnessed a similar political spat a little while earlier, based on
5507the allocation of the 2G spectrum. On that occasion the controversy was
5508brought to this Court by way of a public interest litigation, the judgment
5509whereof is reported as Centre for Public Interest Litigation Vs. Union of
5510India, (2012) 3 SCC 1. Extensive revenue loss, in the course of allocation
5511of the 2G spectrum was duly noticed. On each occasion when the issue of
5512allocation of natural resources, results in an alleged loss of revenue, it
5513is portrayed as a loss to the nation. The issue then becomes a subject
5514matter of considerable debate at all levels of the Indian polity. Loss of
5515one, essentially entails a gain to the other. On each such occasion loss
5516to the nation, translates into the identification of private players as the
5517beneficiaries. If one were to accept the allegations appearing in the
5518media, on account of defects in the disposal mechanism, private parties
5519have been beneficiaries to the tune of lakhs of crores of Indian Rupees,
5520just for that reason. In the current debate, rival political parties have
5521made allegations against those responsible, which have been repudiated with
5522counter allegations. This Court is not, and should never be seen to be, a
5523part of that debate. But it does seem, that the Presidential reference is
5524aimed at invoking this Court’s advisory jurisdiction to iron out the
5525creases, so that legal and constitutional parameters are correctly
5526understood. This would avoid such controversies in future. It is
5527therefore, that an opinion is also being rendered by me, on the fourth
5528question, namely, “What is the permissible scope for interference by courts
5529with policy making by the Government including methods for disposal of
5530natural resources?†On this the advice tendered in the “main opinionâ€
5531inter alia expresses, “We may, however, hasten to add that the Court can
5532test the legality and constitutionality of these methods. When questioned,
5533the Courts are entitled to analyse the legal validity of different means of
5534distribution and give a constitutional answer as to which methods are ultra
5535vires and intra vires the provisions of the Constitution. Nevertheless, it
5536cannot and will not compare which policy is fairer than the other, but, if
5537a policy or law is patently unfair to the extent that it falls fouls of the
5538fairness requirement of Article 14 of the Constitution, the Court would not
5539hesitate in striking it down.â€, (refer to paragraph 146 of the “main
5540opinionâ€). While fully endorsing the above conclusion, I wish to further
5541elucidate the proposition.
5542
5543 Before adverting to anything else, it is essential to refer to Article
554439 (b) of the Constitution of India.
5545 “39. Certain principles of policy to be followed by the State –
5546 The State shall in particular, direct its policy towards
5547 securing -
5548
5549
5550 (b) that the ownership and control of the material resources of
5551 the community are so distributed as best to subserve the common
5552 good;
5553 (emphasis is mine)
5554
5555The mandate contained in the Article extracted above envisages, that all
5556material resources ought to be distributed in a manner which would “best
5557subserve the common goodâ€. It is therefore apparent, that governmental
5558policy for distribution of such resources should be devised by keeping in
5559mind the “common good†of the community i.e., the citizens of this country.
5560 It has been expressed in the “main opinionâ€, that matters of policy fall
5561within the realm of the legislature or the executive, and cannot be
5562interfered with, unless the policy is in violation of statutory law, or is
5563ultra vires the provision(s) of the Constitution of India. It is not
5564within the scope of judicial review for a Court to suggest an alternative
5565policy, which in the wisdom of the Court could be better suited in the
5566circumstances of a case. Thus far the position is clearly unambiguous.
5567
5568 The legality and constitutionality of policy is one matter, and the
5569manner of its implementation quite another. Even at the implementation
5570stage a forthright and legitimate policy, may take the shape of an
5571illegitimate stratagem (which has been illustrated at a later juncture
5572hereinafter). Since the Presidential reference is not based on any
5573concrete fact situation, it would be appropriate to hypothetically create
5574one. This would enable those responsible for decision making, to be able
5575to appreciate the options available to them, without the fear of
5576trespassing beyond the limitations of legality and constitutionality. This
5577would also ensure that a truly meaningful opinion has been rendered. The
5578illustration, that has been chosen is imaginary, and therefore, should not
5579be taken as a reference to any similar real life
5580situation(s)/circumstance(s). The focus in the instant consideration is
5581limited to allocation of natural resources for private commercial
5582exploitation, i.e., where a private player will be the beneficiary of such
5583allocation, and will exploit the natural resource to make personal profits
5584therefrom.
5585
5586 The illustration chosen will be used to express an opinion on matters
5587which are governed by statutory provisions, as also, those which are based
5588on governmental policy. This is so because in so far as the present
5589controversy is concerned, the parameters for distribution of natural
5590resources must be examined under these two heads separately.
5591
5592 Coal is a natural resource. It shall constitute the illustrative
5593natural resource for the present consideration. Let us assume a
5594governmental decision to allocate coal lots for private commercial
5595exploitation. First, the legislative policy angle. Reference may be made
5596to the Mines and Minerals (Development and Regulation) Act, 1957
5597(hereinafter referred to as, the MMDR Act). The enactment deals
5598exclusively with natural resources. Section 11A of the MMDR Act has been
5599chosen as the illustrative provision, to demonstrate how a forthright
5600legitimate legislative policy, may take the shape of an illegitimate
5601stratagem. The choice of Section 11A aforesaid is on account of the fact
5602that it was added to the MMDR Act only on 13.2.2012, and as such, there may
5603not have been, as of now, any actual allocation of coal lots based thereon.
5604 Section 11A of the MMDR Act, is being placed hereunder :
5605 “11A. Procedure in respect of coal or lignite – The Central
5606 Government may, for the purpose of granting reconnaissance
5607 permit, prospecting licence or mining lease in respect of an
5608 area containing coal or lignite, select, through auction by
5609 competitive bidding on such terms and conditions as may be
5610 prescribed, a company engaged in, -
5611 (i) production of iron and steel;
5612 (ii) generation of power;
5613 (iii) washing of coal obtained from a
5614 mine; or
5615 (iv) such other end use as
5616 the Central Government may, by
5617 notification in the Official
5618 Gazette, specify, and the State Government shall
5619 grant such reconnaissance permit, prospecting
5620 licence or mining lease in respect of coal or lignite to
5621 such company as selected through auction by competitive
5622 bidding under this section:
5623
5624
5625 Provided that the auction by competitive bidding shall
5626 not be applicable to an area containing coal or lignite,-
5627
5628
5629 (a) where such area is considered for allocation to a
5630 Government company or corporation for mining or such
5631 other specified end use;
5632
5633
5634 (b) where such area is considered for allocation to a
5635 company or corporation that has been awarded a power
5636 project on the basis of competitive bids
5637 for tariff (including Ultra Mega Power Projects).â€
5638
5639 Explanation – For the purposes of this section “company†means
5640 a company as defined in section 3 of the Companies Act, 1956 and
5641 includes a foreign company within the meaning of section 591 of
5642 that Act.
5643 (emphasis is mine)
5644
5645
5646For the grant of a mining lease in respect of an area containing coal, the
5647provision leaves no room for any doubt, that selection would be made
5648through auction by competitive bidding. No process other than auction, can
5649therefore be adopted for the grant of a coal mining lease.
5650
5651 Section 11A of the MMDR Act also defines the zone of eligibility, for
5652participation in such competitive bidding. To be eligible, the contender
5653must be engaged in the production of iron and steel, or generation of
5654power, or washing of coal obtained from a mine, or an activity notified by
5655the Central Government. Only those satisfying the legislatively prescribed
5656zone of eligibility, are permitted to compete for a coal mining lease. For
5657the sake of fairness, and to avoid arbitrariness, the provision
5658contemplates, that the highest bidder amongst those who participate in the
5659process of competitive bidding, would succeed in obtaining the concerned
5660coal mining lease. The legislative policy limiting the zone of
5661consideration could be subject matter of judicial review. It could be
5662assailed, in case of violation of a legal or constitutional provision. As
5663expressed in the “main opinion†the facts of each individual case, will be
5664the deciding factor for such determination. In the absence of any such
5665challenge, the legislative policy would be binding and enforceable. In
5666such an eventuality, those who do not fall within the zone of
5667consideration, would be precluded from the process of competitive bidding
5668for a mining lease over an area having coal deposits. In the process of
5669auction through competitive bidding, if the objective is to best subserve
5670the common good (as in Article 39(b) of the Constitution of India) the
5671legislative policy would be fully legitimate. If however, the expressed
5672legislative policy has no nexus to any legitimate objective, or it
5673transgresses the mandate of distribution of material resources to “best
5674subserve the common goodâ€, it may well be unfair, unreasonable or
5675discriminatory.
5676
5677 For an effective analysis, Section 11A of the MMDR Act needs a further
5678closer examination. Section 11A aforesaid, as an exception to the
5679legislative policy referred to in the foregoing paragraph, also provides
5680for the grant of a mining lease for coal to a private player, without
5681following the auction route. The provision contemplates the grant of a
5682mining lease for coal, without any reciprocal monetary or other
5683consideration from the lessee. The proviso in section 11A of the MMDR Act,
5684excludes the auction route where the beneficiary is engaged in power
5685generation. Such exclusion, is contemplated only when the power generating
5686concern, was awarded the power project, on the basis of “competitive bids
5687for tariffâ€. It is important to highlight, that there is no express
5688assurance in section 11A aforesaid, that every entrepreneur who sets up a
5689power project, having succeeded on the basis of competitive bidding, would
5690be allotted a coal mining lease. But if such an allotment is actually
5691made, it is apparent, that such entrepreneur would get the coal lot,
5692without having to participate in an auction, free of cost. The legislative
5693policy incorporated in Section 11A of the MMDR Act, if intended to best
5694subserve the common good, may well be valid, even in a situation where the
5695material resource is being granted free of cost. What appears to be free
5696of cost in the proviso in Section 11A of the MMDR Act, is in actuality
5697consideration enmeshed in providing electricity at a low tariff. The
5698aforesaid proviso may be accepted as fair, and may not violate the mandate
5699contained in Article 14 of the Constitution of India, or even the directive
5700principles contained in Article 39(b) of the Constitution of India.
5701
5702 Hypothetically, assume a competitive bidding process for tariff,
5703amongst private players interested in a power generation project. The
5704private party which agrees to supply electricity at the lowest tariff would
5705succeed in such an auction. The important question is, if the private
5706party who succeeds in the award of the project, is granted a mining lease
5707in respect of an area containing coal, free of cost, would such a grant
5708satisfy the test of being fair, reasonable, equitable and impartial. The
5709answer to the instant query would depend on the facts of each individual
5710case. Therefore, the answer could be in the affirmative, as well as, in
5711the negative. Both aspects of the matter are being explained in the
5712succeeding paragraph.
5713
5714 Going back to the hypothetical illustration based on Section 11A of
5715the MMDR Act. One would add some further facts so as to be able to
5716effectively project the legal point of view. If the bidding process to
5717determine the lowest tariff has been held, and the said bidding process has
5718taken place without the knowledge, that a coal mining lease would be
5719allotted to the successful bidder, yet the successful bidder is awarded a
5720coal mining lease. Would such a grant be valid? In the aforesaid fact
5721situation, the answer to the question posed, may well be in the negative.
5722This is so because, the competitive bidding for tariff was not based on the
5723knowledge of gains, that would come to the vying contenders, on account of
5724grant of a coal mining lease. Such a grant of a coal mining lease would
5725therefore have no nexus to the “competitive bid for tariffâ€. Grant of a
5726mining lease for coal in this situation would therefore be a windfall,
5727without any nexus to the object sought to be achieved. In the bidding
5728process, the parties concerned had no occasion to bring down the
5729electricity tariff, on the basis of gains likely to accrue to them, from
5730the coal mining lease. In this case, a material resource would be deemed
5731to have been granted without a reciprocal consideration i.e., free of cost.
5732 Such an allotment may not be fair and may certainly be described as
5733arbitrary, and violative of the Article 14 of the Constitution of India.
5734Such an allotment having no nexus to the objective of subserving the common
5735good, would fall foul even of the directive principle contained in Article
573639(b) of the Constitution of India. Therefore, a forthright and legitimate
5737policy, on account of defective implementation, may become unacceptable in
5738law.
5739
5740 In a slightly changed factual scenario, the conclusion may well be
5741different. If before the holding the process of auction, for the award of
5742a power project (based on competitive bids for tariff), it is made known to
5743the contenders, that the successful bidder would be entitled to a mining
5744lease over an area containing coal, those competing for the power project
5745would necessarily incorporate the profit they were likely to make from such
5746mining lease. While projecting the tariff at which they would supply
5747electricity, they would be in a position to offset such profits from their
5748costs. This would result in an in an opportunity to the contenders to
5749lower the tariff to a level lower than would have been possible without the
5750said lease. In such a situation the gains from the coal mining lease,
5751would be enmeshed in the competitive bidding for tariff. Therefore, it
5752would not be just to assume in the instant sequence of facts, that the coal
5753lot has been granted free of cost. One must read into the said grant, a
5754reciprocal consideration to provide electricity at a lower tariff. In the
5755instant factual scenario, the allotment of the mining lease would be deemed
5756to be aimed at “subserving the common good†in terms of Article 39(b) of
5757the Constitution of India. Therefore even the allotment of such a mining
5758lease, which appears to result in the allocation of a natural resource free
5759of cost, may well satisfy the test of fairness and reasonableness
5760contemplated in Article 14 of the Constitution of India. Moreso, because
5761a fair playing field having been made available to all those competing for
5762the power project, by making them aware of the grant of a coal mining
5763lease, well before the bidding process. The question of favouritism
5764therefore would not arise. Would such a grant of a natural resource, free
5765of cost, be valid? The answer to the query, in the instant fact situation,
5766may well be in the affirmative.
5767
5768 The policy of allocation of natural resources for public good can be
5769defined by the legislature, as has been discussed in the foregoing
5770paragraphs. Likewise, policy for allocation of natural resources may also
5771be determined by the executive. The parameters for determining the
5772legality and constitutionality of the two are exactly the same. In the
5773aforesaid view of the matter, there can be no doubt about the conclusion
5774recorded in the “main opinion†that auction which is just one of the
5775several price recovery mechanisms, cannot be held to be the only
5776constitutionally recognized method for alienation of natural resources.
5777That should not be understood to mean, that it can never be a valid method
5778for disposal of natural resources (refer to paragraphs 10 to 12 of my
5779instant opinion).
5780
5781 I would therefore conclude by stating that no part of the natural
5782resource can be dissipated as a matter of largess, charity, donation or
5783endowment, for private exploitation. Each bit of natural resource expended
5784must bring back a reciprocal consideration. The consideration may be in
5785the nature of earning revenue or may be to “best subserve the common goodâ€.
5786 It may well be the amalgam of the two. There cannot be a dissipation of
5787material resources free of cost or at a consideration lower than their
5788actual worth. One set of citizens cannot prosper at the cost of another
5789set of citizens, for that would not be fair or reasonable.
5790
5791
5792 ............................J.
5793(JAGDISH SINGH KHEHAR)
5794NEW DELHI;
5795SEPTEMBER 27, 2012.
5796-----------------------
5797[1] (2012) 3 SCC 1
5798
5799[2] [1951] S.C.R. 747
5800[3] [1960] 3 S.C.R. 250
5801[4] [1959] S.C.R. 995
5802[5] [1965] 1 S.C.R. 413
5803[6] (1974) 2 SCC 33
5804[7] (1979) 1 SCC 380
5805[8] 1993 Supp (1) SCC 96 (II)
5806[9] (1998) 7 SCC 739
5807[10] (1994) 6 SCC 360
5808
5809[11] [1934] A.C. 586
5810[12] [1959] Supp. 1 S.C.R. 806
5811
5812[13] A.I.R. (30) 1943 FC 13
5813[14] 1991 Supp (1) SCC 240
5814
5815[15] (2002) 4 SCC 388
5816[16] [1949-50] F.C.R. 595
5817[17] AIR 1954 SC 636
5818[18] (1993) 4 SCC 441
5819
5820[19] (2011) 12 SCC 615
5821[20] (1987) 1 SCC 213
5822[21] (1992) 4 SCC 363
5823[22] (2006) 1 SCC 275
5824[23] (2004) 3 SCC 75
5825[24] (2003) 6 SCC 697
5826[25] 36 L ED 1018 : 146 U.S. 387 (1892)
5827[26] (1997) 1 SCC 388
5828[27] (2004) 3 SCC 214
5829[28] (2006) 3 SCC 549
5830[29] (2009) 3 SCC 571
5831[30] (2010) 7 SCC 1
5832[31] (2011) 5 SCC 29
5833[32] (1987) 2 SCC 295
5834
5835[33] (2007) 3 SCC 184; Para 21
5836[34] [1968] 3 SCR 251
5837[35] 1959 Supp (1) SCR 528- “Coming then to the language of the
5838 Article it must be noted, first and foremost that this Article is, in
5839 form, an admonition addressed to the State and does not directly purport
5840 to confer any right on any person as some of the other Articles, e.g.,
5841 Article 19, do. The obligation thus imposed on the State, no doubt,
5842 ensures for the benefit of all persons, for, as a necessary result of the
5843 operation of this Article, they all enjoy equality before the law. That
5844 is, however, the indirect, though necessary and inevitable, result of the
5845 mandate. The command of the Article is directed to the State and the
5846 reality of the obligation thus imposed on the State is the measure of the
5847 fundamental right which every person within the territory of India is to
5848 enjoy.â€
5849[36] AIR 1955 SC 191
5850[37] [1959] 1 SCR 279
5851[38] (1974) 4 SCC 3
5852[39] (1978) 1 SCC 248
5853[40] (1981) 1 SCC 722
5854[41] (1979) 3 SCC 489 : AIR 1979 SC 1628
5855[42] (2002) 2 SCC 188
5856[43] (2001) 2 SCC 386
5857[44] (1996) 3 SCC 709
5858[45] (1981) 4 SCC 335
5859[46] (1973) 4 SCC 225
5860[47] 1952 SCR 284 at pp. 297
5861[48] 330 U.S. 552
5862[49] 1975 (Supp) SCC 1
5863[50] (1984) 1 SCC 515
5864
5865[51] (1977) 4 SCC 471
5866[52] (1972) 2 SCC 788
5867[53] (1980) 4 SCC 1
5868
5869[54] 1988) 1 SCC 166
5870
5871[55] (1997) 7 SCC 592
5872[56] (2000) 8 SCC 262
5873[57] (2003) 8 SCC 100
5874[58] (2009) 7 SCC 561
5875[59] (1981) 4 SCC 675
5876[60] 94 L Ed 381 : 338 US 604 (1950)
5877[61] (1986) Supp SCC 20
5878[62] (1970) 1 SCC 248
5879
5880[63] 354 US 457
5881[64] (1994) 2 SCC 691
5882[65] (1996) 2 SCC 405
5883[66] (2002) 2 SCC 333
5884[67] (1992) 2 SCC 343
5885
5886[68] [1978] 3 SCC 459
5887[69] (2011) 7 SCC 639