M A I N   N E W S

SC gives govt free hand to allocate natural resources
Court says auction not the only permissible method
R Sedhuraman
Legal Correspondent

New Delhi, September 27
In a major relief to the Centre, a five-judge Bench of the Supreme Court today virtually gave it a free hand in the allocation of natural resources, clarifying that the judgment mandating auction was restricted to the 122 telecom licences the SC had cancelled in February this year.

“Auctions are not the only permissible method for disposal of all natural resources across all sectors and in all circumstances,” the Bench headed by outgoing Chief Justices SH Kapadia, who retires on September 29, observed in response to a presidential reference.

Through the reference, the government had sought a clarification as to whether auction was the only route available under the February 2, 2012 SC verdict for allocation of all natural resources.

Cancelling the 122 telecom licences issued in 2008 by the then Telecom Minister A Raja, a two-Judge SC bench had ruled that “the state is duty-bound to adopt the method of auction” to realise market price and prevent losses to the state exchequer. This prompted the government to seek the clarification and contend during the arguments that auction was not possible in the case of all natural resources.

In the 208-page response to the reference, the SC made it clear that the allocation of natural resources “is a policy decision, and the means adopted for the same are thus, Executive prerogatives.”

The SC said “It respects the mandate and wisdom of the executive for such matters. The methodology pertaining to disposal of natural resources is clearly an economic policy. It entails intricate economic choices and the court lacks the necessary expertise to make them.” The other members of the bench were Justices DK Jain, JS Khehar, Dipak Misra, and Ranjan Gogoi.

Going into the concept of market price, the SC pointed that the “auction is just one of the several price discovery mechanisms. Since multiple variables are involved in such valuations, auction or any other form of competitive bidding, cannot constitute even an economic mandate, much less a constitutional mandate.”

On a plea by PIL petitioners to read auction as a constitutional mandate under Article 14 which barred the government from taking arbitrary decisions, the SC said doing this would be against Article 39(b) under which the government should distribute natural resources, going by “common good” and public interest. The 122 licences had been cancelled at the instance of the PIL petitioners, who as a result had become respondents to the presidential reference.

“It is obvious that the manner in which the common good is best sub-served is not a matter that can be measured by any constitutional yardstick - it would depend on the economic and political philosophy of the government,” the SC said.

Further, “revenue maximisation is not the only way in which the common good can be sub-served. ?Auction would be one of the preferable methods, though not the only method,” it explained.

At times, revenue considerations “may assume secondary consideration to developmental considerations. Therefore, in conclusion, the submission that the mandate of Article 14 is that any disposal of a natural resources for commercial use must be for revenue maximisation, and thus by auction, is based neither on law nor on logic. There is no constitutional imperative in the matter of economic policies,” the SC remarked.

The apex court also pointed out that the “government has repeatedly deviated from the course of auction and this court has repeatedly upheld such actions.”

Essentially, whenever the object of policy was other than revenue maximisation, the Executive had adopted methods other than auction. Further, auction “may be contrary to economic logic as well. Different resources may require different treatment. Very often, exploration and exploitation contracts are bundled together due to the requirement of heavy capital in the discovery of natural resources.”

The SC also opined that the fear of potential abuse of other mechanisms by the government could not be a ground for mandating auction.


The government has been under attack after CAG reports on 2G spectrum that had come out with a presumptive loss of `1.76 lakh crore and on coal block allocations that assumed a gain of `1.86 lakh crore to private companies

Auction is just one of the several price discovery mechanisms

In some cases, auction will hinder development

The Supreme Court has confirmed what the government has been saying, that policy making should be left exclusively to the government. The order has brought Constitutional clarity

— Kapil Sibal, Telecom Minister

Public good and public interest cannot be subservient to revenue maximisation when it comes to disbursement of natural resources or national resources

— Anand Sharma, Industry Minister





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