IN RE SPECIAL REFERENCE NO. 1 OF 1998 (1998) 7 SCC 739

IN RE SPECIAL REFERENCE NO. 1 OF 1998 (1998) 7 SCC 739

 

FACTS

In 2012, the Supreme Court was tasked with providing its opinion on the allocation of natural resources through a presidential reference. This request arose from the landmark case known as the 2G spectrum case, formally titled Centre for Public Interest Litigation v. Union of India. The judgment in this case left certain questions unanswered, prompting the President to seek further clarity for the collective benefit of citizens. Natural resources encompass a wide array of assets, including radio frequencies, spectrums, petroleum, minerals, and gas. Consequently, the law governing the allocation of these resources to private entities in the market should be unequivocal. The state's allocation of natural resources must adhere to principles of non-arbitrariness and non-discrimination. Article 14 of the Constitution mandates that the state act fairly and impartially when allocating these resources. This obligation arises from the fiduciary relationship between citizens and the government, which exists to safeguard natural resources. It is impermissible for the government to allocate resources in a manner that exclusively benefits a particular individual or entity. Moreover, when making classifications during resource allocation, the state must ensure that distinctions are non-discriminatory and founded on reasonable grounds. The case provides various examples illustrating how laws should be reasonably applied in such contexts. This underscores the importance of fairness and equity in the allocation process. In this case, the President believed that there were still unresolved questions regarding the allocation of natural resources. It was imperative to obtain definitive answers to eliminate any ambiguity on the part of the state in resource allocation. The uncertainty had always lingered in the government's considerations, but it became more pronounced after the judgment in the 2G spectrum case. This judgment emphasized that auctioning might be the most effective method for resource allocation. Consequently, the President posed several questions and invoked the authority granted by Article 143 of the Indian Constitution. Of the questions presented, the Supreme Court opted to address the first five, while it declined to answer the remaining three. The Court's decision not to address these latter questions was based on their direct relevance to the 2G spectrum case.

 

 ISSUES: 

The President raised several pertinent questions to the Supreme Court, seeking clarity on crucial matters regarding the allocation of natural resources:

1. Is the exclusive and acceptable routine for the allotment of all natural resources in every sector and circumstance limited to conducting auctions?
2. Does a sweeping legal proposition, asserting that auctions are the only permissible process for the disposal of natural resources, not conflict with various judgments of the Supreme Court, including those from larger benches?
3. Does the proclamation of a broad principle, even if articulated as a constitutional matter, effectively equate to the formulation of policy? Does it not potentially disrupt policy decisions and approaches adopted by successive governments over the years, considering factors such as limited public resources and the necessity for innovative and diverse approaches for economic sector development?
4. What is the extent of legitimate intervention by the courts in the government's policy-making process, including decisions regarding the allotment of natural resources?
5. If a court, within the limits of what it can legally review, finds a policy to be problematic, is it not required to consider the investments, including those by foreign investors through international agreements, made under that policy?

 

JUDGMENT-

In the judgment, Justice Khehar emphasized that when the state engages in contracts with private entities, it is imperative for the state to act in a manner that is neither capricious nor arbitrary. Instead, it should conduct itself in a just and equitable manner. The court articulated that in contractual arrangements, particularly in resource allocation, the state should adopt the approach of a prudent businessperson. This entails prioritizing profit maximization, and the resulting gains should be directed towards the collective welfare, or the "common good." The court clarified that by "common good," it means the well-being and benefit of the public as a whole, rather than catering exclusively to the interests of a single individual. This underscores the idea that resources held by the sovereign are, in fact, the collective property of every individual residing within the state. In the judgment, the court made reference to a report by the Comptroller and Auditor General (CAG) that highlighted the losses incurred by the government due to flawed allocation policies. The court acknowledged that determining the most suitable method for resource allocation depends on the specific circumstances of each case. Justice Khehar clarified that the court will assess the method when it is presented in a legal proceeding. Regarding the suggestion of making auction the mandated method for resource allocation, the court cautioned against such a move. It pointed out that enforcing auction as a constitutional requirement could potentially invalidate other viable methods, which might be favoured by various states for their specific policies on resource allocation. In response to the first question, which sought to determine whether auction is the optimal method for resource allocation, the court highlighted that the President's reference lacked a clear and concrete factual context. Thus, deciding a universal method for all resources would be unjust. The court also stressed that no part of natural resources should be disposed of as a charitable or gratuitous act. Instead, every bit of resource must yield a return, and the benefits derived from these resources should be directed towards the welfare of the public.