The SC Presidential Opinion clarifies and warns alike

The Supreme Court has given its Opinion (not a judgment) in the Presidential Reference in order to clarify certain uncertainties prevailing in the law after the famous 2G judgment canceled 122 licenses in February. Kartikeya Tanna gives a gist of what Supreme Court opined and his brief comment on each aspect..By Kartikeya Tanna.The Supreme Court has given its Opinion (not a judgment) in the Presidential Reference in order to clarify certain uncertainties prevailing in the law after the famous 2G judgment canceled 122 licenses in February. Here is a gist of what the Supreme Court opined and my brief comment on each aspect..The limited applicability of the 2G judgment.The Supreme Court categorically mentions that the operative paragraphs of the 2G judgment, which led to the widespread interpretation that auction was the only route for alienation of all natural resources, actually evaluated only the validity of the method adopted in the distribution of spectrum from September ’07 to March ’08 and not the use of auction in general. Not only that, the Supreme Court made it clear that the 2G judgment did not even carve out any special case for how to distribute scarce natural resources only meant for commercial exploitation. (para 78).Highlighting the use of the word ‘perhaps’ in Para 96 of the 2G judgment [“a duly publicized auction conducted fairly and impartially is perhaps the best method for discharging this burden”], the Supreme Court regarded this as merely a “conclusion made at first blush over the attractiveness of a method like auction”..Comment: The 2G judgment has been relied on by several parties in litigations before various courts (including a case on land allotments without auction under the Vibrant Gujarat policy) to challenge distribution of natural resources by governments other than by way of auction. The Supreme Court’s opinion affirms the point I made in an analysis written in February after the 2G judgment that it neither advocates auction as the only method for distribution of natural resources nor does it hold the first-come-first-serve policy as being in violation of the Constitution. The analysis can be read here..The limited scope of judicial review in policy decisions.The Supreme Court also pointed out that complexity of economic problems and their fulfillment by the State through a methodology of trial and error necessitated greater judicial deference to the executive (para 138). Citing from the Premium Granites case which stated that it was not the domain of the court to conduct an exercise “to consider as to whether a particular public policy is wise” or that a “better policy can be evolved”, the Supreme Court made it clear that an analysis of a particular policy could only be done when there is violation of any constitutional or statutory provisions..In fact, the Supreme Court admitted that the judiciary lacks the necessary expertise required for evaluating policies on economic aspects and that the mandate and wisdom of the executive in such matters ought to be respected (para 146)..Comment: In our polity, the fact that the executive is elected provides it with the mandate to determine policy choices for its people – at the state or central level. Such policy choices also include choices on matters concerning economics. Depending on what vision elected governments have for their states or the country as the case may be (socialist welfare, fast-paced development or other ideologies), the governments take decisions. In order to maintain a healthy separation of powers between the executive and judiciary, the judiciary must be conscious of its limitations in reviewing policy decisions. This Opinion reasserts the line endorsed by various Supreme Court judgments..Auction as a ‘constitutionally mandated’ procedure.The Supreme Court also clarified confusion surrounding the 2G judgment that auction was a constitutionally mandated procedure. It stated that, rather than commanding the State to take particular step in a particular manner, Article 14 of the Constitution of India was an injunction to the State against taking certain type of actions. Therefore, a blanket proposition that auction was a constitutional mandate for disposal of natural resources under Article 14 was fallacious. (Para 106).It thus followed that constitutional principles such as ‘equality’ or ‘fairness’ under Article 14 could not be translated into a “precise formulas” limited to mean adoption of auction in every case of distribution. The strength of constitutional adjudication, according to the Supreme Court, lay in its ability to make “case to case adjudication” (para 110)..Legitimacy of means other than auction.Citing from a plethora of judgments such as M/s Kasturi Lal Lakshmi Reddy, Sachidanand Pandey (incidentally, referred to in the 2G judgment), Haji T.M. Hassan Rawther, M.P. Oil Extraction, Netai Bag and so on, the Supreme Court couldn’t have more elaborately clarified that various methods chosen by several governments would be upheld by the court as long as the implementation thereof did not violate any constitutional principle or statutory provision..More importantly, the Supreme Court categorically stated that merely because other routes had the potential for abuse did not mean that such potential could, of itself, be a ground for invalidating that method. When an abuse did occur in any route adopted by the State, it was the actual abuse that must be brought before the Court and constitutionally tested (para 135)..Comment: This puts to rest the popular, but misplaced, interpretation arising from the 2G judgment that the first-come-first-serve policy was ultra vires Article 14 of the Constitution due to the potential for abuse. I had highlighted in the earlier analysis that the 2G judgment cannot be interpreted as having invalidated the FCFS policy..Revenue maximization as the only way for achieving ‘public good’.Rejecting CPIL’s argument that revenue maximization was the only way of achieving ‘public good’ and that, therefore, auction, which was the best way of maximizing revenues, became a constitutional principle under Article 39(b) of the Constitution, the Supreme Court said that revenue maximization may not always be the best way to subserve public good (para 116)..Therefore, the Supreme Court clearly conceives situations where revenue considerations may “assume secondary considerations to developmental considerations” and that a blanket proposition that any disposal of a natural resource for commercial use must be for revenue maximization is based “neither on law nor on logic” (para 120)..Indeed, the Supreme Court stated that when a policy decision is not backed by a social or welfare purpose and precious and scarce natural resources are alienated exclusively for commercial pursuits of profit-maximizing private entrepreneurs, adoption of means other than those that are competitive and that enable maximization of revenue “may be arbitrary and face the wrath of Article 14 of the Constitution” (para 149). Justice Khehar expanded upon this in a more assertive way in his separate opinion..Comment: Economic logic which insists that allocation of natural resources should be done only by auction may, at times, run counter to public good. An example which the Supreme Court mentioned is the exploration and exploitation contracts which are bundled together due to the huge capital investment required for discovery of natural resources. Those entities which risk undertaking such exploration by incurring heavy costs wouldn’t do so if they were not assured utilization of the resource discovered. Similarly, when land is allotted for industrial purposes in many States in India, the goal of the respective state governments is not to maximize revenue by auctioning the land, but to facilitate widespread economic development that will ensue from such allotment. Let us assume that Microsoft makes a request for allotment of huge quantity of land in a relatively underdeveloped State to establish its Asia headquarters. Microsoft’s aim is clearly to maximize its profits. Should the State government tell Microsoft to wait till it puts in place an auction process and then ask it to apply through that? Or, should allotment be done through negotiations with the entity concerned, indeed without violating the basic constitutional principles?.Justice Khehar – the sentinel who warned.Perhaps foreseeing how this Opinion might be relied upon by governments to completely avoid auctioning natural resources, Justice Khehar expanded on it in an elaborate manner. In Para 2, therefore, he stressed that the Opinion does not, in any manner, advise that it is not necessary to dispose any natural resources by way of auction. Giving the example of the Mines and Minerals (Development and Regulation) Act, he observed that Central Government itself was conscious and alive to the fact that some natural resources could only be disposed of by way of auction..Further into his opinion, he ended up adding a greater degree of assertion to the view touched upon in the Opinion. He effectively laid down that, in cases of natural resources being made available by the State to private persons for commercial exploitation exclusively for their individual gains, the State’s endeavour to maximize revenue alone would guarantee extension of fundamental rights enshrined in Article 14 to the public at large (para 10). If the State got less than the full value of the resources, it could be inferred that “the country has been cheated” and the wealth belonging to the nation has been lost..It is pertinent to note here that “maximization of revenue” usually implied tender, tender-cum-auction or auction since these were indisputable routes for revenue maximization. If, therefore, the State finds that, in some situations, only auction could secure maximum revenues, auction would, according to Justice Khehar, be the only process to adopt. He provided enough warnings to the State to guard itself against charitable distribution of natural resources when such resources would be used exclusively for profit maximization of a few individuals..Towards the end, he draws a clear distinction between policy and its implementation. Citing the 1996 Common Cause case where State largesse (petrol pumps) was to be allotted on the grounds of “poverty and unemployment”, Justice Khehar recognized that while the Supreme Court did not find fault in the policy per se, the fault was with the “manner of giving effect to the policy”, i.e., its implementation..Justice Khehar rather presciently employed a hypothetical to illustrate how the implementation of a legitimate policy could take the shape of a cleverly designed illegitimate stratagem. In the MMDR law, the proviso to Section 11A exempts the Central Government from following the auction route where the beneficiary has been awarded a power project on the basis of competitive bids for tariff, i.e., the entity which bids the lowest tariff. Such allotment of a coal-mining lease, even though free of cost, is intended to serve the ‘common good’. However, if the bidding process for power project is held without the knowledge that a coal mining lease would be allotted to the successful bidder, the procedure may suffer from deficiencies and fall foul of the objective of serving the ‘common good’. This is because a lack of knowledge as to the gains that would accrue from the bidding process would not give entities an incentive to bid even lower than they would. Allotment of the coal-mining lease would then be a windfall gain..Concluding comments: Spokespersons of the UPA government have made claims that their stand has been proved right by the 5 judge Bench of the Supreme Court. Subramanian Swamy, the chief opponent of the UPA on these issues, has made a valiant effort to defend this apparent “loss”. My view is that it is neither a “victory” for the UPA and Kapil Sibal nor a “loss” for Swamy even though, in the political realm and in TV studios, it has ended up being a battle of whose gloating is more justified. Sibal’s stance yesterday appeared to have some credence only because, back in February, UPA’s opponents strutted around the blanket generalizations they thought the Supreme Court made in the 2G judgment. Indeed, the 2G judgment itself left a lot of questions unanswered. Therefore, this opinion was extremely vital to “iron out the creases so that legal and constitutional parameters are correctly understood.”.Additionally, Justice Khehar’s warnings infused into the Opinion an ideal quantity of warnings for governments across the board against indulging in implementing policies in a manner so as to benefit a few. The real victory, therefore, is of the Indian Judiciary, which has handed down a vital opinion on critical matters with several clarifications and adequate warnings in a judicially proper way..Kartikeya is a corporate transactional partner at Tanna Associates, a multi-practice law firm in Ahmedabad. He can be contacted at kartikeya@tannaassociates.com.