SC opinion on auctions clarifies — but also warns

As it always happens, the Supreme Court’s advisory opinion in the Presidential Reference has sent the media into a frenzy trying to decipher who scored more points. UPA spokespersons, led by the visibly happy Kapil Sibal, considered this opinion as a vindication of the government’s stand. What gave some credence to Sibal’s stance was the strutting around since February by UPA’s opponents, including Subramanian Swamy, of what they thought were blanket generalisations handed down by the court in the 2G case. This opinion really is a victory for the Indian judiciary which has handled a critical matter with several nuances in a judicially proper way. The ideal dose of clarifications and warnings alike should provide a good reason to inspire confident decision-making by the hitherto panicked bureaucrats while keeping in mind enough warnings against exploiting loopholes in the system to confer personal gain to a few. Contrary to the widespread interpretation that the 2G judgment laid down a blanket rule that auction was the only route for the alienation of all natural resources, the Supreme Court made it crystal clear that the 2G judgment merely evaluated the validity of the method adopted in the distribution of spectrum from September 2007 to March 2008. This affirms the point made by the author in his opinion on Firstpost back in February. [caption id=“attachment_471909” align=“alignleft” width=“380”]  Kapil Sibal. PTI[/caption] Secondly, the court ensured that the government could exercise its choice as to the policy without unreasonable interference from the judiciary. Stating that it was not the domain of the court to conduct an exercise “to consider as to whether a particular public policy is wise”, the Supreme Court would analyse a particular policy only when there was a violation of any constitutional or statutory provisions. This is crucial given that, in our polity, the fact that an executive is elected provides it the mandate to make policy choices for utilising the natural resources in accordance with its economic vision — whether influenced by socialist or welfare model, a model of fast-paced development or other ideologies. The apex court’s opinion clarifies this line of separation. Thirdly, in a big relief not just to the UPA but governments across the nation, the Supreme Court clarifies that adoption of auction as the method for distribution of natural resources is neither a constitutional mandate nor a hard-and-fast rule. Courts have long upheld various other methods chosen by several governments as long as the implementation thereof does not violate a constitutional principle or a statutory provision. Importantly, the Supreme Court stated that just because another route has the potential for abuse would not automatically invalidate it. It was the actual abuse in each given case that required passing through a constitutional test. This puts to rest the popular but misplaced interpretation arising from the 2G case that the first-come-first-served policy was in violation of Article 14 of the Constitution merely because of the “fundamental flaw”, something this author argued against in his opinion. Fourthly, the SC rejected the argument that revenue maximisation was the only way of achieving ‘public good’ and that auction was the only way of maximising revenues, stating that such an argument was based “neither on law nor on logic”. In fact, the court said that revenue maximisation may not always be the best way to subserve the public good. It mentioned the example of exploration contracts for discovery of natural resources which are typically awarded together with the right of exploitation, which may well result in huge profits. The logic behind that is to reward an entity for the huge risks it takes for engaging in discovery by making huge capital investments. Another example can be explained in the form of a hypothetical. Say, Microsoft applies for allotment of a huge quantity of land in a relatively underdeveloped state to establish its Asia headquarters. Should the state government tell Microsoft to wait till it puts in place an auction process and then ask it to apply through that? Microsoft’s aim is clearly to maximise its profits. Yet, shouldn’t the sheer certainty of widespread economic development due to Microsoft’s presence trump the insistence for asking it to participate in an auction? Indeed, if assets like coal blocks are allotted without auction in an arbitrary fashion to ineligible individuals and the clearly foreseeable impact is an increase in the attractability of such allottees to the stock markets or foreign investors, then we have a problem. Therefore, this opinion wasn’t merely about conferring rights on governments in their distribution of natural resources. It was about duties as well. In a separate opinion, Justice Jagdish Khehar clarified that this opinion couldn’t be inferred as an advice that it is not necessary to use auction at all for disposing natural resources. Moreover, when natural resources were made available by the state to private persons for commercial exploitation exclusively for their individual gains, the state’s endeavour to maximise revenue alone would guarantee extension of fundamental rights to the public at large. The best way to maximise revenue in these situations was through auction or one of its variants. Ergo, if the state got less than the full value of the resources, it could be inferred that “the country has been cheated” and the wealth belonging to the nation has been lost. Lastly, and most importantly, he elaborated at length using a hypothetical example to show how illegitimate implementation of otherwise laudable policies ended up causing huge loss to the nation at the cost of lining a few pockets. After all, the patently illegal and criminal implementation of the FCFS policy – a policy not unlawful in itself – is what resulted in the cancellation of 2G licences and criminal consequences for the main participants. As shocking details of coal block allocations surface each day, Coalgate is likely to follow suit even if the Screening Committee system per se faces no objection. The most an intervention such as yesterday’s opinion can do is to provide UPA a little bit of oxygen supply in what seems to be a daunting run ahead.