Supreme Court Rules Auction Not Mandatory for Disposal of All Natural Resources, Clarifies 2G Spectrum Judgment

In Special Reference by President of India, SC holds that auction is preferable but not a constitutional mandate under Article 14; disposal methods must serve public good and be free from arbitrariness.

In a landmark advisory opinion delivered on September 27, 2012, a five-judge bench of the Supreme Court of India, led by Chief Justice S.H. Kapadia, clarified the constitutional position regarding the disposal of natural resources. The reference arose from a Special Reference No. 1 of 2012 made by the President of India under Article 143(1) of the Constitution, seeking the Court’s opinion on whether auction is the only permissible method for disposal of all natural resources across all sectors and circumstances.

Background and Reference

The Reference was occasioned by the Supreme Court’s earlier judgment in the 2G spectrum case (Centre for Public Interest Litigation v. Union of India, 2012), which had quashed licenses issued under a ‘first come, first served’ policy and mandated allocation of spectrum by auction. However, doubts arose about whether the principle of auction laid down for spectrum allocation extended to all natural resources. The Reference posed several questions, notably:

1. Is auction the only permissible method for disposal of all natural resources across all sectors and circumstances?

2. Does such a broad rule conflict with earlier Supreme Court judgments?

3. What is the permissible scope of judicial interference with government policy on natural resource disposal?

The Court’s Analysis on Maintainability

The Supreme Court first addressed objections to the maintainability of the Reference, raised by parties including petitioners in the 2G case and Dr. Subramanian Swamy, who argued that the Reference was an impermissible attempt to overturn the 2G judgment or that there was no ‘doubt’ as required for such references.

Rejecting these objections, the Court held that:

- The President’s satisfaction that a question is ‘likely to arise’ suffices for a reference; the word ‘doubt’ is not mandatory.

- A Presidential Reference is not an appeal or review against an earlier judgment but an advisory opinion on questions of law or fact of public importance.

- The Court can clarify or reconsider the ratio decidendi of earlier judgments without disturbing their binding effect inter partes.

- Allegations of mala fide on the part of the Executive in making the Reference were unsustainable.

Hence, the Reference was held maintainable.

Key Merits: Auction Is Not a Constitutional Mandate for All Natural Resources

The Court examined the ‘law declared’ by the 2G case and held that its ratio on auction was confined to spectrum allocation, not all natural resources. The key observations included:

- Auction was described as ‘perhaps the best method’ for spectrum allocation, implying room for other methods.

- Extending the auction mandate to all natural resources would invalidate numerous laws (e.g., Mines and Minerals Act) prescribing other allocation methods.

- Article 14 of the Constitution (equality before law) prohibits arbitrariness but does not mandate a particular method of disposal.

- Article 39(b) (Directive Principle) requires distribution of natural resources to ‘best subserve the common good’ but does not restrict the method to auction alone.

- The choice of disposal method is a policy decision and primarily an executive prerogative.

- Courts can only intervene if the method adopted is arbitrary, unfair, or discriminatory violating Article 14.

The Court elaborated that the State holds natural resources as trustee of the people and must act transparently and fairly. However, auction is only one of several possible price discovery and disposal mechanisms, not a constitutional requirement.

Legitimate Deviations and Judicial Review

The Court recognized legitimate deviations from auction in various circumstances, such as:

- To promote industrial development or regional growth.

- To incentivize investments where auction may be impractical.

- Where social welfare considerations outweigh revenue maximization.

It emphasized that any deviation must be reasonable, non-arbitrary, and in public interest. Judicial review is limited to ensuring policies are not capricious or discriminatory; courts do not substitute their own policy preferences.

Additional Observations

- The Reference does not affect the quashing of 2G licenses or the auction direction therein, which the Government accepted.

- The President’s power under Article 143(1) to seek the Court’s opinion is broad and cannot be questioned on bona fides.

- The Court must balance individual rights with the interests of the vast majority of citizens in natural resource allocation.

- Compensation may be awarded where arbitrary or mala fide State action causes loss or harassment.

Conclusion

The Supreme Court answered the Reference by holding that:

- Auction is not the only permissible method for disposal of all natural resources across all sectors and circumstances.

- Disposal methods other than auction are permissible, provided they conform to constitutional principles of fairness, equality, and public good.

- Judicial scrutiny of disposal methods depends on facts and circumstances; arbitrary or discriminatory methods violate Article 14.

The Court respectfully declined to answer other questions in the Reference that directly impacted the 2G judgment to preserve its finality.

This historic opinion clarifies the constitutional framework governing natural resource disposal, balancing economic policy discretion of the Executive with judicial oversight to prevent arbitrariness and protect public interest.

Statutory provisions

Constitution of India Article 14, Article 39(b), Article 143(1), Mines and Minerals (Regulation and Development) Act, 1957 Section 11A



Reference by President of India to Supreme Court ..COI (Regarding 2G Spectrum) (SC) : Law Finder Doc Id # 395146