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Auction Not Only Method For Resource Allocation: SC

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The Supreme Court on September 27 gave its verdict on the presidential reference on 2G spectrum allocation, where it said that its 2G order was restricted to auction of telecom spectrum only and has not laid down any rule for other resources.
 
The apex court clarified that it does not believe that all national resources must be auctioned. The opinion, delivered by five judges, provides relief for the government; partly because it accepts that the government has the right to decide policy.  The court also said the policy of auction has not got constitutional mandate.
 
The Supreme Court has, however, said that it agrees that spectrum or airwaves for mobile network licenses must be auctioned - a point the government has already accepted.  
 
Further, the court said allocation of natural resources is a policy decision which should be backed by social and welfare measures.
 
The court verdict comes amid a debate over whether the government lost the country thousands of crores by allocating coal fields without a competitive bidding process - the government has said that an auction would have  made coal  more expensive, adversely affecting industrial development.
 
The government had on April 12 moved the Reference signed by the then President Pratibha Patil in which eight questions have been raised, including whether there could be judicial interference in policy matters, vis-a-vis disposal of natural resources and investments made by foreign investors under multi and bilateral agreements.
 
It was alleged that the government tried to overrule the 2G verdict through the route of reference. A five-judge Constitution Bench headed by Chief Justice S H Kapadia made the ruling over the reference. The Constitution Bench also consisted of justices D K Jain, J S Khehar, Dipak Misra and Ranjan Gogoi.
 
Auction despite being a more "preferable method" of allotment of natural resources cannot be held to be a constitutional mandate, observed the bench.
 
"In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra-vires the constitutional mandate," the bench said.
 
The bench said that auctions may be the best way of maximizing revenue but revenue maximisation may not always be the ultimate motive of the policy and natural resources can be allocated to private companies by other methods for the purpose to subserve public good.
 
"Common good is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the common good and if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in the Article," the bench said. .
 
The apex court referred to various judgements delivered by it earlier while upholding government's decision to allocate natural resources through means other than auction.
 
"It is manifest that there is no constitutional mandate in favour of auction under Article 14. The Government has repeatedly deviated from the course of auction and this Court has repeatedly upheld such actions," the bench said.
 
It said "whenever the object of policy is anything but revenue maximisation, the Executive is seen to adopt methods other than auction".
 
Justice Khehar, who wrote a separate but concurring judgement, said that natural resource should not be dissipated as a matter of charity, donation or endowment, for private exploitation.
 
"No part of the natural resource can be dissipated as a matter of largess, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to best subserve the common good. It may well be the amalgam of the two.
 
"There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth.
 
One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable," Justice Khehar said.
 
The court disagreed with the contention that auction should be the only means of allocation as other methods can be abused by the private companies in connivance with government authorities as happened in 2G case.
 
"It may be said that even auction has a potential of abuse, like any other method of allocation, but that cannot be the basis of declaring it as an unconstitutional methodology either. These drawbacks include cauterisation, winners curse etc.
 
"However, all the same, auction cannot be called ultra vires for the said reasons and continues to be an attractive and preferred means of disposal of natural resources especially when revenue maximisation is a priority.
 
"Therefore, neither auction, nor any other method of disposal can be held ultra vires the Constitution, merely because of a potential abuse," the bench said.
 
The court said that revenue maximisation cannot always be the primary consideration while allocating resources to private companies and assume secondary consideration when the development is the main consideration.
 
"Revenue maximisation is not the only way in which the common good can be subserved. Where revenue maximisation is the object of a policy, being considered qua that resource at that point of time to be the best way to subserve the common good, auction would be one of the preferable methods, though not the only method.
 
"Where revenue maximization is not the object of a policy of distribution, the question of auction would not arise.
 
Revenue considerations may assume secondary consideration to developmental considerations," the bench said.
 
It said that the suggestion that disposal of a natural resource for commercial use must be for revenue maximization is based "neither on law nor on logic".
 
"Economic logic establishes that alienation/allocation of natural resources to the highest bidder may not necessarily be the only way to subserve the common good, and at times, may run counter to public good.
 
"Hence, it needs little emphasis that disposal of all natural resources through auctions is clearly not a constitutional mandate," the 208-page opinion given by the apex court said.
 
"Whether the judgement lays down that the permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auction," the Reference has stated.
 
"Whether the court holds that within the permissible scope of judicial review that the policy is flawed, is the court not obliged to take into account investment made under the said policy including the investment made by foreign investors under the multi and bilateral agreements," it said.
 
It sought the court's opinion on "whether the judgement is required to be given retrospective effect so as to unsettle the licences issued for 2G spectrum and allocated after 1994 till 2008."
 
The Reference also touched upon the 3G spectrum allocated through "auction" and wanted to know the implications of the judgement on it.
 
"Whether 3G spectrum acquired through the auction in 2010 by entities whose (2G) licences have been quashed in the judgement stands withdrawn," it asked.
 
A meeting of the Union Cabinet, chaired by Prime Minister Manmohan Singh, had on April 10 cleared the Telecom Ministry's proposal to seek the Supreme Court's opinion on various issues arising out of the February 2 judgement.
 
The two-judge bench, in its verdict, had also observed that auction was best suited route for allocating natural resources like telecom spectrum because the policy of first-come-first-serve was flawed.
 
The bench had on May 11 issued notices to the state governments and industrial chambers FICCI and CII and sought their responses on behalf of the private industries.
 
The court had also issued notices to the NGO, Centre for Public Interest Litigation (CPIL) and Janata Party President Subramanian Swamy on whose petitions a bench comprising justices G S Singhvi and A K Ganguly (since retired) had delivered a judgement on February 2 cancelling 122 telecom licences by holding that the first-come-first-served policy was illegal and unconstitutional.
 
The bench headed by Justice Singhvi had held that all natural resources should be allocated through auction.