Auctions: Constitutional Clarity?

In April this year the President of India asked the Supreme Court whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions?
 
This week a 5 judge constitutional bench of the Supreme Court opined that ‘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...however, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of article 14 of the constitution.’
 
I'm a bit confused about the Supreme Court’s 5 judge constitutional bench response to the questions raised by the presidential reference. As a business reporter, I suppose I should be happy for my constituency - mandatory auctions would have meant an upheaval in past allocations and an expensive future. But as a citizen I wonder - in this day and age of political indiscretion, should discretionary allotments be acceptable? Now I get that the judiciary should not be deciding economic policy, that the constitution mandates equality, non-arbitrariness, common good but it doesn’t prescribe auction as the only way to achieve those and I get that India’s problems are less about wrong policy than about corrupt policy. Yet I can't help but wonder - did the constitutional bench do the best it could? Or did it play safe?
 
Hello & Welcome to a special edition of the firm - my guests today are the Former Chief Justice of the Supreme Court VN Khare, Former Attorney General and well know known jurist Soli Sorabjee and Maharasthra’s Former Advocate General Ravi Kadam.

Doshi: Justice Khare, way back in March, you had suggested on this very show that the government should resort to a Presidential Reference to, in a sense, sort out the confusion arising from the 2G judgment and its comments on auctions being the only way. What do you think this opinion has now done in terms of clarifying the situation and do you think that it has broken any new ground or it has simply reendorsed or reiterated what Supreme Court judgments have said all along?
 
Khare: In fact when I had suggested in March, it was on this ground that the review is not the option because with review the scope is very limited. As a Chief Justice and a judge, I hardly find any review petitions being allowed. So, in my view the judgment required a larger bench to consider it.
 
Doshi: What do you make or how do you assess Supreme Court’s response to those questions raised, the predominant of the major questions being the issue of auction?
 
Khare: The response is quite favourable because we are in welfare state and the auction is not the only method- take the welfare measures, suppose you go for housing for the poor people, go in health area in many places that you have to work for the poor and have-not; not the maximisation of earning to the coffers of the government, but we have to see the welfare of the people also in general and if auction is resorted to then that will not going to benefit the poor people, the have-not and the common people for which the government is meant.
 
Doshi: Soli Sorabjee, you argued against the maintainability of the presidential reference itself- we will get to the legalities of that in just a bit, but what do you make of the fact that this Supreme Court opinion with regards to the presidential reference doesn’t really break any new ground, in fact it cites several other Supreme Court opinions that say pretty much the same thing that the judiciary should not interfere when it comes to economic policy-making and that the constitution doesn’t mandate auctions; it’s a preferred route, but not the only route?
 
Sorabjee: Actually, there is no new pronouncement, no new law laid down. Way back in Balco’s case, which I have argued as attorney general, the Supreme Court made it very clear that the economic wisdom of a policy, the court won’t examine the questions whether policy A is good and policy B would have been better. Court won’t go into the other question whether the policy will be beneficial to the people - these are matters for the executive. But very important, the court also said if the policy is patently discriminatory- suppose for example hypothetical case if the allocations are to be made to members of a particular community or the means for implementing a policy are vitiated by factors like favouritism, nepotism and exchanges considerations that the court said in Balco that we will certainly interfere. In other words, the wisdom of the policy is beyond that kind of judicial review, but the implementation is certainly not and if in a given case, it is established, then court will interfere and the judgment has reiterated that – on the contrary the judgment has gone a bit further in its language and said the arbitrary, capricious and various other things, there is nothing new said here.
 
Doshi: Ravi Kadam, so we spent months in confusion simply because of a few unintended paragraphs in the 2G judgment because the Supreme Court in its opinion, this bench has held that the 2-judge bench could not have intended auctions to be the only route- they have used ‘perhaps’ - that being the keyword and hence we don’t think that that’s what the 2G judgment lays out that auction is the only route and then they have gone on to explain why auction is not mandated under the constitution. So, we spent all this confusion simply because of a few unintended paragraphs?
 
Kadam: I don’t think they were unintended paragraphs. They were necessary for the decision in the 2G case. Now what the Supreme Court did is when the reference came to the question, which was pending at large that are these paragraphs i.e. paragraph 94-96 of the 2G judgment, do they lay down a constitutional principle that auction is the only route and that question had arisen and that required to be answered.
 
Doshi: That only arose because of the way some paragraphs in the 2G judgment were phrased- in a sense implying that the 2- judges on that bench believed that auction was the only method and the Supreme Court’s constitutional bench has said that couldn’t be what the 2 judges are implying because that’s not possible, a whole catena of law would have to be overturned for that to be possible and hence they could not have implied that. We spent 8 or 9 months in confusion because of words that should not have been there in that judgment?
 
Kadam: There may have been a confusion, there could have been a likelihood of confusion in courts when future such cases would come up for consideration. Now a reference under 143 can be made when a question is arisen and a doubt has already arisen or a doubt is likely to arise in future.
 
Doshi: I get the grounds for 143.
 
Kadam: So because of these situations required that a reference be made and as Justice Khare rightly said the correct method was to make a reference where you would get a complete clarity from a bench of the Supreme Court. Sorabjee: Sorry, there is one point on which I don’t agree with Ravi Kadam and Justice Khare is this. I don’t think a presidential reference lies in order to assess the correctness of a judgment of a court which has attained finality. Presidential reference is not an appellate jurisdiction. In a presidential reference, the court cannot sit in appeal of the correctness of a judgment of another bench of the court which has attained finality. Therefore in order to meet this objection, and this is established with another judgment of the Supreme Court of the Cauvery Tribunals that under 143, you can’t ask the court to reconsider its own judgment, which has attained finality. But the Attorney General, the resourceful person that he is, he countered saying that we are not challenging the 2G judgment, we have accepted the 2G judgment and then proof of his statement he said look we have also cancelled the other licenses- in that way got over the problem about maintainability, but one thing I do wish to emphasize and not only in this matter, but in future we should be very clear, reference jurisdiction is not appellate jurisdiction. If a certain judgment you thing is wrong they go through the route 2, 3, and 5 judges, the judicial route, not the reference route. In reference you are not supposed to consider the correctness or otherwise of a judgment of the Supreme Court, which has attained finality and which is law under 141. Opinion on the reference, we are not too sure, it is not clear whether its law under 141, is entitled to highest respect on that very well, but as a moot point whether an opinion under a reference is a binding judgment under 141.
 
Kadam: The argument of the persons who were opposing the maintainability of the reference was that this reference is really only a means to overrule the judgment in the 2G case and they relied on the judgment in the Cauvery-II to illustrate their point. The Supreme Court made it clear that there is a difference between the decision in a case and the principle of law, the view of law laid down in a given case. The decision in that case attains finality after review etc. is over, but the view of law that is expressed in a given case can always be reconsidered in a later case. Then the question was can you do it in a presidential reference or do it in another case with a larger bench. They said that you can do it on the presidential reference and they gave the example of Keshav Singh’s case, which was presidential reference I of 1964, where the constitution bench in presidential reference said that the view laid down in an earlier case, which was on privileges of the legislature was inaccurate. In other words, saying that the view was wrong. So, this was always there; it was in 1964, the Supreme Court had said it and the Supreme Court relied on that to say if necessary in a given case we can say that the view expressed earlier is wrong, but they didn’t say so in this case. They said that they only explained and amplified what was deciding the 2G case.
 
Doshi: This is why they say we have the jurisdiction to clarify the ratio of the 2G judgment whether we choose to do so or not right now.
 
The Supreme Court 5-judge constitutional bench opined that ‘Auctions maybe the best way of maximizing revenue, but revenue maximization may not always be the best way to sub-serve public good’. In keeping with previous Supreme Court decisions this bench said Article 14 does not predefine any economic policy as a constitutional mandate, even the mandate of Article 39 (b) imposes no restrictions on the means adopted to sub-serve public good.
 
Doshi: Could this bench have taken a more activist or more contemporary view of Article 14 and Article 39 (b) given these circumstances that we live in, Mr. Kadam, you want to come in on that?
 
Sorabjee: May I ask you a question? In what way, what would you think SC would be the proactive view, I want to know?
 
Doshi: I will give you a very lay person view Mr. Sorabjee. The economy has changed considerably let’s say in the last 15-20 years. There was a time in India when the allocation of most natural resources was done through public sector firms and today it has been done through private sector firms. There are allegations of these resources being cornered by private sector firms. Could this bench have laid down that in most cases an auction is desirable, an auction is the way to go and if there is a deviation from an auction then it has to be very well explained, the rationale has to be very clear, could that have been the case, it’s a question, I am not saying that it should have been the case, could that have been the case?
 
Kadam: The Supreme Court has already said even in this judgment that auction is still the most attractive and the most preferred method, but it has only answered the question that it is not the only one and to answer your question it is not a question of whether the Supreme Court should be more proactive or less proactive; the Supreme Court has to do the right thing in accordance with law and that’s what they have done. Now one may wish that in a certain case, a certain section of society may want them to go further; another section may not want. The Supreme Court is there for that purpose to make sure that the right thing is done, which maybe a middle-path in a given case.
 
Khare: What is the function of the court? The function of the court is judicial review, it is not within the domain of the judiciary to lay down the policy. It is within the exclusive domain to lay down the policy. Of course if the policy so framed is such that is discriminatory, arbitrarily and all those things, which have been said then you can struck down, but the court can’t frame a policy whether it should take a auction route or a allotment route or go by first come first serve. It is left to the wisdom of the executive to lay out the policy and of course the majority view is corrected when you say that it is not within the domain of the court to lay down the policy and of course the policy is so framed by the executive should be tested.
 
Doshi: Let me bring in Justice Khehar’s opinion here because that seem to me as a slightly more activist opinion- he has taken into account the politics of the time, the CAG Reports and all of that?
 
Sorabjee: Yes, I think Khehar will satisfy your favourite expression- proactive.
 
Doshi: I am saying judicial activism. I thought this court played it judicially safe, politically correct or stayed within the boundaries of what courts need to do as all three of you have eloquently laid out. I was just wondering whether the current circumstances required the court to take a step beyond that. Justice Khehar to some extent has done it. What do you make of his views Mr. Sorabjee?
 
Sorabjee: If you ask me, theoretical considerations apart, separation apart and all that. In the present context, in the present climate I am all for Justice Khehar’s extension of a judicial review.
 
Doshi: In that case you are all for what I have been saying a slightly more activist view of how Article 14 (interrupted…)?
 
Sorabjee: We had to satisfy you apart from the court.
 
Doshi: Mr. Sorabjee is indulging me, but what do you make (interrupted…)?
 
Kadam: What I feel is Justice Khehar has really used the coal illustration as an illustrative kind of example but is very contemporary (interrupted...).
 
Doshi: To use coal in this day and age, to use power generation in this day and age in that illustration and to make the point very clear that when a power plant has not been competitively bid for and yet that power producer gets an almost free of cost allocation of coal, then that might be considered invalid if examined by way of constitutional principles. He is going the whole hog.
 
Kadam: But he has, to be fair to him said, that this is illustrative and an imaginary illustration. He has used the words taking a hypothetical case and he is kind of using that language just to make sure that he is not dealing with any specific case, but using it to illustrate the point that he is making.
 
Doshi: But he has clearly used coal for a purpose? He has not used water, he has not used anything else, he has used coal, can I consider this…(Interrupted)
 
Kadam: Maybe he said that because he was probably conscious of what is being written- he said so in the judgment that what is happening in the country, we are all conscious of it and I take judicial notice of what’s happening in the country and the coal issue.
 
Doshi: Justice Khare, do you believe that the Supreme Court did the right thing. This 5-judge bench, played it safe, took the only possible path that maintains balance of power or do you think that they should have played it a slightly more activist role as Justice Khehar has laid out in his opinion?
 
Khare: I think what the majority has, majority view- majority opinion is not a judgment- but they have clarified the thing and they have advised and the opinion that was given is within the constitutional frame and I think they have clarified the correct preposition of law.
 
Doshi: In that case does this dilute the argument of the CAG either in the 2G case or even in the coal case that there is a notional loss to this country because the auction route was not used. Now the government can respond by saying listen, we are not required to use the auction route and I am a little worried if it dilutes that case?
 
Kadam: I think of course it does dilute the CAG’s case substantially, but the Supreme Court in the concluding paragraph has said that even when you don’t follow the auction route and you follow an alternative method you will have to justify it as non-discriminatory, not violating the mandate of Article 14, that it was necessary in the public interest not to maximize revenue, not to avoid the competitive bidding process, all those things will be tested again.
 
I maybe making a case for more activism, but that clause has already spooked commercial lawyers. The last word goes to them.
 
Mohit Saraf, Partner, Luthra & Luthra
“If a natural resource is transferred to a private entity for commercial objective, for commercial purposes then typically the bidding should be the best route, they said that. That is a fair point. They also said that if it is being transferred for social welfare purposes then the state is free to look at any other consideration that also is fair. Now look at the real world scenario. Now when you transfer a coal mine to NTPC, Coal India or to any private company in India like Birla’s, JSW any company, just thing about any company. Now all these companies, what are they doing? They owe certain responsibility to the shareholders of the company and that is to make profit- that is very clear, these are all companies for commercial objectives including Coal India, including NTPC they all have commercial objective, but they may also have a social objective. Now what the Supreme Court has done by saying that when you are transferring a resource to a company for commercial objective then the bidding is the better way and then they said that however if there are social objectives involved, social and welfare objective involved then let the government decide. Now what is important is in most cases both objectives are involved and therefore it was very important for the Supreme Court to have laid the guidelines.”
 
Shardul Shroff, Managing Partner, Amarchand Mangaldas
“This principle that whether it is arbitrary or capricious, if the policy is arbitrary or capricious in your pre-bid conference meeting you would state so with reasons. So supposing any bidder feels that this is whimsical or this is capricious you will articulate that policy problem at the pre-bid meeting and the onus will then be on the government or the executive to explain why did they make such a capricious policy. Now the warning bells will be there therefore to the government or the department, which is making the sale of natural resources that already this challenge is on the mind of one of the bidders and it is therefore the shift which have already taken place, but the onus will be on the government to defend its policy. It can never be the obligation of a private party bidding in a joint venture to take the burden of a government problem.”