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REPORTABLE IN THE SUPREME COURT OF INDIA

ADVISORY JURISDICTION

RE:     SPECIAL     REFERENCE     NO.1     OF     2012      [Under Article 143(1) of the Constitution of India]

O     P     I     N     I     O     N   

D.K.     JAIN,     J.   [FOR S.H. KAPADIA, CJ, HIMSELF,                          DIPAK MISRA & RANJAN GOGOI, JJ.]

In exercise of powers conferred under Article 143(1) of the  

Constitution of India, the President of India has on 12th April,  

2012, made the present Reference.  The full text of the  

Reference (sans the annexures) is as follows:

“WHEREAS in 1994, the Department of  Telecommunication, Government of India (“GOI”),  issued 8 Cellular Mobile Telephone Services Licenses  (“CMTS Licenses”), 2 in each of the four Metro cities of  Delhi, Mumbai, Kolkata and Chennai for a period of 10  years (the “1994 Licenses”).  The 1994 licensees were  selected based on rankings achieved by them on the  technical and financial evaluation based on parameters  set out by the GoI in the tender and were required to  pay a fixed licence fee for initial three years and  subsequently based on number of subscribers subject to  minimum commitment mentioned in the tender  document and licence agreement.  The 1994 Licenses  issued by GoI mentioned that a cumulative maximum of  upto 4.5 MHz in the 900 MHz bands would be permitted  based on appropriate justification.  There was no  

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separate upfront charge for the allocation of Spectrum  to the licensees, who only paid annual Spectrum usage  charges, which will be subject to revision from time to  time and which under the terms of the license bore the  nomenclature “licence fee and royalty”.  A copy of the  1994 Licenses, along with a table setting out the pre- determined Licence Fee as prescribed by DoT in the  Tender, is annexed hereto as Annexure I (Colly).

WHEREAS in December 1995, 34 CMTS Licenses  were granted based on auction for 18  telecommunication circles for a period of 10 years (the  “1995 Licenses”).  The 1995 Licenses mentioned that  a cumulative maximum of up to 4.4 MHz in the 900 MHz  bands shall be permitted to the licensees, based on  appropriate justification.  There was no separate upfront  charge for allocation of spectrum to the licensees who  were also required to pay annual spectrum usage  charges, which under the terms of the license bore the  nomenclature “licence fee and royalty”  which will be  subject to revision from time to time.  A copy of the  1995 Licenses, along with a table setting out the fees  payable by the highest bidder, is annexed hereto as  Annexure II (Colly).

WHEREAS in 1995, bids were also invited for basic  telephone service licenses (“BTS Licenses”) with the  license fee payable for a 15 year period.  Under the  terms of the BTS Licenses, a licensee could provide  fixed line basic telephone services as well as wireless  basic telephone services.  Six licenses were granted in  the year 1997-98 by way of auction through tender for  providing basic telecom services (the “1997 BTS  Licenses”).  The license terms, inter-alia, provided that  based on the availability of the equipment for Wireless  in Local Loop (WLL), in the world market, the spectrum  in bands specified therein would be considered for  allocation subject to the conditions mentioned therein.  There was no separate upfront charge for allocation of  spectrum and the licensees offering the basic wireless  telephone service were required to pay annual  Spectrum usage charges, which under the terms of the  license bore the nomenclature “licence fee and royalty”.  

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A sample copy of the 1997 BTS Licenses containing the  table setting out the license fees paid by the highest  bidder is annexed hereto as Annexure III (Colly).

WHEREAS in 1997, the Telecom Regulatory  Authority of India Act, 1997 was enacted and the  Telecom Regulatory Authority of India (the “TRAI”) was  established.

WHEREAS on 1st April, 1999, the New Telecom  Policy 1999 (“NTP 1999”) was brought into effect on  the recommendation of a Group on Telecom (“GoT”)  which had been constituted by GoI.  A copy of NTP 1999  is annexed hereto as Annexure IV.  NTP 1999 provided  that Cellular Mobile Service Providers (“CMSP”) would  be granted a license for a period of 20 years on the  payment of a one-time entry fee and licence fee in the  form of revenue share.  NTP 1999 also provided that  BTS (Fixed Service Provider or FSP) Licenses for  providing both fixed and wireless (WLL) services would  also be issued for a period of 20 years on payment of a  one-time entry fee and licence fee in the form of  revenue share and prescribed charges for spectrum  usage, appropriate level of which was to be  recommended by TRAI.  The licensees both cellular and  basic were also required to pay annual Spectrum usage  charges.

WHEREAS based on NTP 1999, a migration package  for migration from fixed license fee to one time entry  fee and licence fee based on revenue share regime was  offered to all the existing licenses on 22nd July, 1999.  This came into effect on 1st August 1999.  Under the  migration package, the licence period for all the CMTS  and FSP licensees was extended to 20 years from the  date of issuance of the Licenses.

WHEREAS  in 1997 and 2000, CMTS Licenses were  also granted in 2 and 21 Circles to Mahanagar  Telephone Nigam Limited (“MTNL”) and Bharat Sanchar  Nigam Limited (“BSNL”) respectively (the “PSU  Licenses”).  However, no entry fee was charged for the  PSU Licenses.  The CMTS Licenses issued to BSNL and  

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MTNL mentioned that they would be granted GSM  Spectrum of 4.4 + 4.4 MHz in the 900 MHz band.  The  PSU Licensees were also required to pay annual  spectrum usage charges.  A copy of the PSU Licenses is  annexed hereto as Annexure V (Colly).

WHEREAS in January 2001, based on TRAI’s  recommendation, DoT issued guidelines for issuing  CMTS Licenses for the 4th Cellular Operator based on  tendering process structured as “Multistage Informed  Ascending Bidding Process”.  Based on a tender, 17 new  CMTS Licenses were issued for a period of 20 years in  the 4 Metro cities and 13 Telecom Circles (the “2001  Cellular Licenses”).  The 2001 Licenses required that  the licensees pay a one-time non refundable entry fee  as determined through auction as above and also  annual license fee and annual spectrum usage charges  and there was no separate upfront charge for allocation  of spectrum.  In accordance with the terms of tender  document, the license terms, inter-alia, provided that a  cumulative maximum of upto 4.4 MHz + 4.4 MHz will be  permitted and further based on usage, justification and  availability, additional spectrum upto 1.8 MHz + 1.8 MHz  making a total of 6.2 MHz + 6.2 MHz, may be  considered for assignment, on case by case basis, on  payment of additional Licence fee.  The bandwidth upto  maximum as indicated i.e. 4.4 MHz & 6.2 MHz as the  case may be, will be allocated based on the Technology  requirements (e.g. CDMA @ 1.25 MHz, GSM @ 200 KHz  etc.).  The frequencies assigned may not be contiguous  and may not be same in all cases, while efforts would be  made to make available larger chunks to the extent  feasible.  A copy of the 2001 Cellular Licenses, along  with a table setting out the fees payable by the highest  bidder, is annexed hereto as Annexure VI.

WHEREAS in 2001, BTS Licenses were also issued  for providing both fixed line and wireless basic  telephone services on a continual basis (2001 Basic  Telephone Licenses).  Service area wise one time Entry  Fee and annual license fee as a percentage of Adjusted  Gross Revenue (AGR) was prescribed for grant of BTS  Licenses.  The licence terms, inter-alia, provided that for  

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Wireless Access System in local area, not more than 5 +  5 MHz in 824-844 MHz paired with 869-889 MHz band  shall be allocated to any basic service operator  including existing ones on FCFS basis.  A detailed  procedure for allocation of spectrum on FCFS basis was  given in Annexure-IX of the 2001 BTS license.  There  was no separate upfront charge for allocation of  spectrum and the Licensees were required to pay  revenue share of 2% of the AGR earned from wireless in  local loop subscribers as spectrum charges in addition  to the one time entry fee and annual license fee.  A  sample copy of the 2001 Basic Telephone License along  with a table setting out the entry fees is annexed hereto  as Annexure VII.

WHEREAS on 27th October, 2003, TRAI  recommended a Unified Access Services Licence  (“UASL”) Regime.  A copy of TRAI’s recommendation is  annexed hereto as Annexure VIII.

WHEREAS on 11.11.2003, Guidelines were issued,  specifying procedure for migration of existing operators  to the new UASL regime.  As per the Guidelines, all  applications for new Access Services License shall be in  the category of Unified Access Services Licence. Later,  based on TRAI clarification dated 14.11.2003, the entry  fee for new Unified Licensee was fixed same as the  entry fee of the 4th cellular operator.  Based on further  recommendations of TRAI dated 19.11.2003, spectrum  to the new licensees was to be given as per the existing  terms and conditions relating to spectrum in the  respective license agreements.  A copy of the Guidelines  dated 11.11.2003 is annexed hereto as Annexure IX.

WHEREAS consequent to enhancement of FDI limit  in telecom sector from 49% to 74%, revised Guidelines  for grant of UAS Licenses were issued on 14.12.2005.  These Guidelines, inter-alia stipulate that Licenses shall  be issued without any restriction on the number of  entrants for provision of Unified Access Services in a  Service Area and the applicant will be required to pay  one time non-refundable Entry, annual License fee as a  percentage of Adjusted Gross Revenue (AGR) and  

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spectrum charges on revenue share basis.  No separate  upfront charge for allocation of spectrum was  prescribed.  Initial Spectrum was allotted as per UAS  License conditions to the service providers in different  frequency bands, subject to availability.  Initially  allocation of a cumulative maximum up to 4.4 MHz +  4.4 MHz for TDMA based systems or 2.5 MHz + 2.5 MHz  for CDMA based systems subject to availability was to  be made.  Spectrum not more than 5 MHz + 5 MHz in  respect of CDMA system or 6.2 MHz + 6.2 MHz in  respect of TDMA based system was to be allocated to  any new UAS licensee.  A copy of the UASL Guidelines  dated 14.12.2005 is annexed hereto as Annexure X.

WHEREAS after the introduction of the UASL in 2003  and until March 2007, 51 new UASL Licenses were  issued based on policy of First Come-First Served, on  payment of the same entry fee as was paid for the 2001  Cellular Licenses (the “2003-2007 Licenses”) and the  spectrum was also allocated based on FCFS under a  separate wireless operating license on case by case  basis and subject to availability.  Licensees had to pay  annual spectrum usage charges as a percentage of  AGR, there being a no upfront charge for allocation of  spectrum.  A copy of the 2003-2007 License, along with  a table setting out the fees payable, is annexed hereto  as Annexure XI (Colly).

WHEREAS on 28th August 2007, TRAI revisited the  issue of new licenses, allocation of Spectrum, Spectrum  charges, entry fees and issued its recommendations, a  copy of which is annexed hereto as Annexure XII.  TRAI  made further recommendations dated 16.07.2008 which  is annexed hereto as Annexure XIII.

WHEREAS in 2007 and 2008, GoI issued Dual  Technology Licences, where under the terms of the  existing licenses were amended to allow licensees to  hold a license as well as Spectrum for providing services  through both GSM and CDMA network.  First  amendment was issued in December, 2007.  All  licensees who opted for Dual Technology Licences paid  the same entry fee, which was an amount equal to the  

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amount prescribed as entry fee for getting a new UAS  licence in the same service area.  The amendment to  the license inter-alia mentioned that initially a  cumulative maximum of upto 4.4 MHz + 4.4 MHz was to  be allocated in the case of TDMA based systems (@ 200  KHz per carrier or 30 KHz per carrier) and a maximum of  2.5 MHz + 2.5 MHz was to be allocated in the case of  CDMA based systems (@ 1.25 MHz per carrier), on case  by case basis subject to availability.  It was also, inter- alia, mentioned that additional spectrum beyond the  above stipulation may also be considered for allocation  after ensuring optimal and efficient utilization of the  already allocated spectrum taking into account all types  of traffic and guidelines/criteria prescribed from time to  time.  However, spectrum not more than 5 + 5 MHz in  respect of CDMS system and 6.2 + 6.2 MHz in respect of  TDMA based system was to be allocated to the licensee.  There was no separate upfront charge for allocation of  Spectrum.  However, Dual Technology licensees were  required to pay Spectrum usage charges in addition to  the license fee on revenue share basis as a percentage  of AGR.  Spectrum to these licensees was allocated  10.01.2008 onwards.

WHEREAS Subscriber based criteria for CMTS was  prescribed in the year 2002 for allocation of additional  spectrum of 1.8 + 1.8 MHz beyond 6.2 + 6.2 MHz with a  levy of additional spectrum usage charge of 1% of AGR.  The allocation criteria was revised from time to time.  A  copy of the DoT letter dated 01.02.2002 in this regard is  annexed hereto as Annexure XIV.

WHEREAS for the spectrum allotted beyond 6.2  MHz, in the frequency allocation letters issued by DoT  May 2008 onwards, it was mentioned inter-alia that  allotment of spectrum is subject to pricing as  determined in future by the GoI for spectrum beyond  6.2 MHz + 6.2 MHz and the outcome of Court orders.  However, annual spectrum usage charges were levied  on the basis of AGR, as per the quantum of spectrum  assigned.  A sample copy of the frequency allocation  letter is annexed hereto as Annexure XV.

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WHEREAS Spectrum for the 3G Band (i.e. 2100  MHz band) was auctioned in 2010.  The terms of the  auction stipulated that, for successful new entrants, a  fresh license agreement would be entered into and for  existing licensees who were successful in the auction,  the license agreement would be amended for use of  Spectrum in the 3G band.  A copy of the Notice inviting  Applications and Clarifications thereto are annexed  hereto and marked as Annexure XVI (Colly).  The  terms of the amendment letter provided, inter alia, that  the 3G spectrum would stand withdrawn if the license  stood terminated for any reason.  A copy of the  standard form of the amendment letter is annexed  hereto and marked as Annexure XVII.

WHEREAS letters of intent were issued for 122  Licenses for providing 2G services on or after 10 January  2008, against which licenses (the “2008 Licenses”)  were subsequently issued.  However, pursuant to the  judgment of this Hon’ble Court dated 2nd February, 2012  in Writ Petition (Civil) No.423 of 2010 (the “Judgment”),  the 2008 Licenses have been quashed.  A copy of the  judgment is annexed hereto and marked Annexure  XVIII.

WHEREAS the GoI has also filed an Interlocutory  Application for clarification of the Judgment, wherein the  GoI has placed on record the manner in which the  auction is proposed to be held pursuant to the Judgment  and sought appropriate clarificatory orders/directions  from the Hon’ble Court.  A copy of the Interlocutory  Application is annexed hereto and marked as Annexure  XIX.

WHEREAS while the GoI is implementing the  directions set out in the Judgment at paragraph 81 and  proceeding with a fresh grant of licences and allocation  of spectrum by auction, the GoI is seeking a limited  review of the Judgment to the extent it impacts  generally the method for allocation of national resources  by the State.  A copy of the Review Petition is annexed  hereto and marked as Annexure XX.

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WHEREAS by the Judgment, this Hon’ble Court  directed TRAI to make fresh recommendations for grant  of licenses and allocation of Spectrum in the 2G band by  holding an auction, as was done for the allocation of  Spectrum for the 3G licenses.

WHEREAS, in terms of the directions of this  Hon’ble Court, GoI would now be allocating Spectrum in  the relevant 2G bands at prices discovered through  auction.

WHEREAS based on the recommendations of TRAI  dated 11.05.2010 followed by further clarifications and  recommendations, the GoI has prescribed in February  2012, the limit for spectrum assignment in the Metro  Service Areas as 2x10MHz/2x6.25 MHz and in rest of the  Service Areas as 2x8MHz/2x5 MHz for GSM (900 MHz,  1800 MHz band)/CDMA(800 MHZ band), respectively  subject to the condition that the Licensee can acquire  additional spectrum beyond prescribed limit in the open  market should there be an auction of spectrum subject  to the further condition that total spectrum held by it  does not exceed the limits prescribed for merger of  licenses i.e. 25% of the total spectrum assigned in that  Service Area by way of auction or otherwise.  This limit  for CDMS spectrum is 10 MHz.

WHEREAS, in view of the fact that Spectrum may  need to be allocated to individual entities from time to  time in accordance with criteria laid down by the GoI,  such as subscriber base, availability of Spectrum in a  particular circle, inter-se priority depending on whether  the Spectrum comprises the initial allocation or  additional allocation, etc., it may not always be possible  to conduct an auction for the allocation of Spectrum.

AND WHEREAS in view of the aforesaid, the  auctioning of Spectrum in the 2G bands may result in a  situation where none of the Licensees, using the 2G  bands of 800 MHz., 900 MHz and 1800 MHz would have  paid any separate upfront fee for the allocation of  Spectrum.

AND WHEREAS the Government of India has  

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received various notices from companies based in other  countries, invoking bilateral investment agreements and  seeking damages against the Union of India by reason  of the cancellation/threat of cancellation of the licenses.

AND WHEREAS in the circumstance certain  questions of law of far reaching national and  international implications have arisen, including in  relation to the conduct of the auction and the regulation  of the telecommunications industry in accordance with  the Judgment and FDI into this country in the telecom  industry and otherwise in other sectors.

Given that the issues which have arisen are of  great public importance, and that questions of law have  arisen of public importance and with such far reaching  consequences for the development of the country that it  is expedient to obtain the opinion of the Hon’ble  Supreme Court of India thereon.

NOW THEREFORE, in exercise of powers  conferred upon me by clause (1) of Article 143 of the  Constitution of India, I, Pratibha Devisingh Patil,  President of India, hereby refer the following questions  to the Supreme Court of India for consideration and  report thereon, namely:

Q.1 Whether the only permissible method for disposal  of all natural resources across all sectors and in all  circumstances is by the conduct of auctions?

Q.2 Whether a broad proposition of law that only the  route of auctions can be resorted to for disposal of  natural resources does not run contrary to several  judgments of the Supreme Court including those of  Larger Benches?

Q.3 Whether the enunciation of a broad principle, even  though expressed as a matter of constitutional law,  does not really amount to formulation of a policy  and has the effect of unsettling policy decisions  formulated and approaches taken by various  successive governments over the years for valid  considerations, including lack of public resources  

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and the need to resort to innovative and different  approaches for the development of various sectors  of the economy?

Q.4 What is the permissible scope for interference by  courts with policy making by the Government  including methods for disposal of natural  resources?

Q.5 Whether, if the court holds, within the permissible  scope of judicial review, that a policy is flawed, is  the court not obliged to take into account  investments made under the said policy including  investments made by foreign investors under  multilateral/bilateral agreements?

Q.6 If the answers to the aforesaid questions lead to an  affirmation of the judgment dated 02.02.2012 then  the following questions may arise, viz.  

(i) whether the judgment is required to be given  retrospective effect so as to unsettle all  licences issued and 2G spectrum (800, 900,  and 1800 MHz bands) allocated in and after  1994 and prior to 10.01.2008?

(ii) whether the allocation of 2G spectrum in all  circumstances and in all specific cases for  different policy considerations would  nevertheless have to be undone?

And specifically (iii) Whether the telecom licences granted in  

1994 would be affected?

(iv) Whether the Telecom licences granted by  way of basic licences in 2001 and licences  granted between the period 2003-2007  would be affected?

(v) Whether it is open to the Government of  India to take any action to alter the terms  of any licence to ensure a level playing field  among all existing licensees?

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(vi) Whether dual technology licences granted  in 2007 and 2008 would be affected?

(vii) Whether it is necessary or obligatory for  the Government of India to withdraw the  Spectrum allocated to all existing licensees  or to charge for the same with  retrospective effect and if so on what basis  and from what date?

Q.7 Whether, while taking action for conduct of auction  in accordance with the orders of the Supreme  Court, it would remain permissible for the  Government to:

(i) Make provision for allotment of Spectrum  from time to time at the auction discovered  price and in accordance with laid down  criteria during the period of validity of the  auction determined price?

(ii) Impose a ceiling on the acquisition of  Spectrum with the aim of avoiding the  emergence of dominance in the market by  any licensee/applicant duly taking into  consideration TRAI recommendations in this  regard?

(iii) Make provision for allocation of Spectrum  at auction related prices in accordance with  laid down criteria in bands where there  may be inadequate or no competition (for  e.g. there is expected to be a low level of  competition for CDMA in 800 MHz band and  TRAI has recommended an equivalence  ratio of 1.5 or 1.3X1.5 for 800 MHz and 900  MHz bands depending upon the quantum of  spectrum held by the licensee that can be  applied to auction price in 1800 MHz band  in the absence of a specific price for these  bands)?

Q.8 What is the effect of the judgment on 3G Spectrum  acquired by entities by auction whose licences  

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have been quashed by the said judgment?

NEW DELHI; DATED: 12 April 2012          PRESIDENT OF  INDIA”

2. A bare reading of the Reference shows that it is occasioned  

by the decision of this Court, rendered by a bench of two  

learned Judges on 2nd February, 2012 in Centre for Public  

Interest Litigation & Ors. Vs. Union of India & Ors.1  

(for brevity “2G Case”).

3. On receipt of the Reference, vide order dated 9th May,  

2012, notice was issued to the Attorney General for India.  

Upon hearing the learned Attorney General, it was directed  

vide order dated 11th May, 2012, that notice of the  

Reference shall be issued to all the States through their  

Standing Counsel; on Centre for Public Interest Litigation  

(CPIL) and Dr. Subramanian Swamy (petitioners in the 2G  

Case); as also on the Federation of Indian Chambers of  

Commerce and Industry (FICCI) and Confederation of  

Indian Industry (CII), as representatives of the Indian  

industry.  On the suggestion of the learned Attorney  

General, it was also directed (though not recorded in the  

order), that the reference shall be dealt with in two parts  1  (2012) 3 SCC 1

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viz. in the first instance, only questions No. 1 to 5 would be  

taken up for consideration and the remaining questions  

shall be taken up later in the light of our answers to the  

first five questions.

4. At the commencement of the hearing of the Reference on  

10th July, 2012, a strong objection to the maintainability of  

the Reference was raised by the writ petitioners in the 2G  

Case.  Accordingly, it was decided to first hear the learned  

counsel on the question of validity of the Reference.   

SUBMISSIONS     ON     MAINTAINABILITY  :

5. Mr. Soli Sorabjee, learned senior counsel, appearing for  

CPIL, strenuously urged that in effect and substance, the  

Reference seeks to question the correctness of the  

judgment in the 2G Case, which is not permissible once  

this Court has pronounced its authoritative opinion on the  

question of law now sought to be raised.  The learned  

counsel argued that reference under Article 143(1) of the  

Constitution does not entail appellate or review  

jurisdiction, especially in respect of a judgment which has  

attained finality.  According to the learned counsel, it is  

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evident from the format of the Reference that it does not  

express or suggest any ‘doubt’ as regards the question of  

fact or law relating to allocation of all natural resources, a  

sine-qua-non for a valid reference. In support of the  

proposition, learned counsel placed reliance on  

observations in earlier references - In Re: The Delhi  

Laws Act, 1912, the Ajmer-Merwara (Extension of  

Laws) Act, 1947 And The Part C States (Laws) Act,  

19502, In Re: The Berubari Union and Exchange of  

Enclaves Reference Under Article 143(1) of the  

Constitution of India3, In Re: The Kerala Education  

Bill, 195,7 In Reference Under Article 143(1) Of The  

Constitution of India4, Special Reference No.1 of  

19645 (commonly referred to as “Keshav Singh”), In Re:  

Presidential Poll6, In Re: The Special Courts Bill,  

19787, In the Matter of : Cauvery Water Disputes  

Tribunal8 (hereinafter referred to as “Cauvery-II”) and  

Special Reference No.1 of 1998 Re.9

2   [1951] S.C.R. 747 3  [1960] 3 S.C.R. 250 4  [1959] S.C.R. 995 5  [1965] 1 S.C.R. 413 6   (1974) 2 SCC 33 7   (1979) 1 SCC 380 8  1993 Supp (1)  SCC 96 (II) 9   (1998) 7 SCC 739

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6. Next, it was contended by the learned senior counsel that  

if for any reason, the Executive feels that the 2G Case  

does not lay down a correct proposition of law, it is open to  

it  to persuade another bench, before which the said  

judgment is relied upon, to refer the issue to a larger  

bench for reconsideration. In short, the submission was  

that an authoritative pronouncement, like the one in the  

2G Case, cannot be short circuited by recourse to Article  

143(1).  

7. Learned counsel also contended that the Reference as  

framed is of an omnibus nature, seeking answers on  

hypothetical and vague questions, and therefore, must not  

be answered. Commending us to In Re: The Special  

Courts Bill, 1978 (supra) and several other decisions,  

learned counsel urged that a reference under Article  

143(1) of the Constitution for opinion has to be on a  

specific question or questions. It was asserted that by  

reason of the construction of the terms of Reference, the  

manner in which the questions have been framed and the  

nature of the answers proposed, this Court would be  

entitled to return the Reference unanswered by pointing  

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out the aforesaid impediments in answering it.  Lastly, it  

was fervently pleaded that if the present Reference is  

entertained, it would pave the way for the Executive to  

circumvent or negate the effect of inconvenient  

judgments, like the decision in the 2G Case, which would  

not only set a dangerous and unhealthy precedent, but  

would also be clearly contrary to the ratio of the decision in  

Cauvery II.

8. Mr. Prashant Bhushan, learned senior counsel, while  

adopting the arguments advanced by Mr. Soli Sorabjee,  

reiterated that from the format of questions No.1 to 5, as  

well as from the review petition filed by the Government in  

the 2G Case, it is clear that the present Reference seeks  

to overrule the decision in the 2G Case by reading down  

the direction that allowed only ‘auction’ as the permissible  

means for allocation of all natural resource, in paragraphs  

94 to 96 of the 2G Case, to the specific case of spectrum.  

It was argued by the learned counsel that it is apparent  

from the grounds urged in the review petition filed by the  

Government that it understood the ratio of the 2G Case,  

binding them to the form of procedure to be followed while  

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alienating precious natural resources belonging to the  

people, and yet it is seeking to use the advisory jurisdiction  

of this Court as an appeal over its earlier decision.  It was  

contended that even if it be assumed that a doubt relating  

to the disposal of all natural resources has arisen on  

account of conflict of decisions on the point, such a conflict  

cannot be resolved by way of a Presidential reference; that  

would amount to holding that one or the other judgments  

is incorrectly decided, which, according to the learned  

counsel, is beyond the scope of Article 143(1). Learned  

counsel alleged that the language in which the Reference  

is couched, exhibits mala fides on the part of the  

Executive. He thus, urged that we should refrain from  

giving an opinion.

9. Dr. Subramanian Swamy, again vehemently objecting to  

the maintainability of the Reference, on similar grounds,  

added that the present Reference is against the very spirit  

of Article 143(1), which, according to the constituent  

assembly debates, was meant to be invoked sparingly,  

unlike the case here.  It was pleaded that the Reference is  

yet another attempt to delay the implementation of the  

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directions in the 2G Case.  Relying on the decision of this  

Court in Dr. M. Ismail Faruqui & Ors. Vs. Union of  

India & Ors.10, Dr. Swamy submitted that we will be well  

advised to return the Reference unanswered.

10. Mr. G.E. Vahanvati, the learned Attorney General for India,  

defending the Reference, submitted that the plea  

regarding non-maintainability of the Reference on the  

ground that it does not spell out a ‘doubt’, is fallacious on a  

plain reading of the questions framed therein.  According  

to him, Article 143(1) uses the word ‘question’ which arises  

only when there is a ‘doubt’  and the very fact that the  

President has sought the opinion of this Court on the  

questions posed, shows that there is a doubt in the mind of  

the Executive on those issues.  It was stressed that merely  

because the Reference does not use the word ‘doubt’  in  

the recitals, as in other cited cases, does not imply that in  

substance no doubt is entertained in relation to the mode  

of alienation of all natural resources, other than spectrum,  

more so when the questions posed for opinion have far  

reaching national and international implications. It was  

10  (1994) 6 SCC 360

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urged that the content of the Reference is to be  

appreciated in proper perspective, keeping in view the  

context and not the form.

11. It was urged that maintainability and the discretion to  

decline to answer a reference are two entirely different  

things.  The question of maintainability arises when ex-

facie, the Presidential reference does not meet the basic  

requirements of Article 143(1), contrastive to the question  

of discretion, which is the power of the Court to decline to  

answer a reference, for good reasons, once the reference  

is maintainable.  In support of the proposition, reliance was  

placed on In Re: The Kerala Education Bill, 1957  

(supra), Keshav Singh and In Re: The Special Courts  

Bill, 1978 (supra).  According to the learned counsel, the  

question as to whether the reference is to be answered or  

not, is not an aspect of maintainability, and is to be  

decided only after hearing the reference on merits.

12. Learned Attorney General, while contesting the plea that in  

a reference under Article 143(1), correctness or otherwise  

of earlier decisions can never be gone into, submitted that  

in a Presidential reference, there is no constitutional  

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embargo against reference to earlier decisions in order to  

clarify, restate or even to form a fresh opinion on a  

principle of law, as long as an inter partes decision is left  

unaffected.  In support of the contention that in the past,  

references have been made on questions in relation to the  

correctness of judgments, learned counsel placed reliance  

on the decisions of this Court In Re: The Delhi Laws Act,  

1912 (supra), Special Reference No.1 of 1998 (supra),  

Keshav Singh (supra) and of the Privy Council  In re  

Piracy Jure Gentium11. It was asserted that it has been  

repeatedly clarified on behalf of the Executive that the  

decision in the 2G Case has been accepted and is not  

being challenged. The Reference was necessitated by  

certain observations made  as a statement of law in the  

said judgment which require to be  explicated. Referring to  

certain observations in Re: The Berubari Union and  

Exchange of Enclaves (supra), learned counsel  

submitted that this Court had accepted that a reference  

could be answered to avoid protracted litigation.   

13. Learned Attorney General also contended that withdrawal  

11  [1934] A.C. 586

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of the review petition by the Government is of no  

consequence ; its withdrawal does not imply that the  

question about the permissible manner of disposal of other  

natural resources, and the issues regarding the  

environment for investment in the country, stood settled.  

Stoutly refuting the allegation that the reference is mala  

fide, learned counsel submitted that in In Re Presidential  

Poll (supra), it is clearly laid down that the Court cannot  

question the bona fides of the President making the  

reference.

14. Mr. T.R. Andhyarujina, learned senior counsel, voiced  

concerns arising out of an apparent conflict between  

provisions of the statutes and the judgment delivered in  

the 2G Case; specifically with reference to Sections 10 and  

11 of the Mines and Minerals (Regulation and  

Development) Act, 1957 (for short, “MMRD Act”), which  

prescribe a policy of preferential treatment and first come  

first served, unlike the 2G Case, which according to the  

learned counsel only mandates auction for all natural  

resources.  He thus, urged this Court to dispel all  

uncertainties regarding the true position of law after the  

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judgment in the 2G Case, by holding it as per incuriam in  

light of the provisions of the MMRD Act and other statutes.

15. Mr. Harish Salve, learned senior counsel, appearing on  

behalf of CII, while supporting the Reference, fervently  

urged that the contention that the Reference deserves to  

be returned unanswered due to the absence of the use of  

the word ‘doubt’  in the recitals of the Reference, is  

untenable.  According to the learned counsel, under Article  

143(1), the President can seek an opinion on any question  

of law or fact that has arisen, or is likely to arise, which is  

of such a nature and such public importance that it is  

expedient to seek the opinion of this Court. There is no  

additional condition that there should be any ‘doubt’ in the  

mind of the President. It was submitted by the learned  

counsel that the need for a Presidential reference may also  

arise to impart certainty to certain questions of law or fact  

which are of such a nature and of such moment as to  

warrant seeking opinion of this Court.  It was urged that a  

pedantic interpretation, by which a Presidential reference  

would be declined on semantic considerations, such as the  

failure to use the word ‘doubt’ in the reference, should be  

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eschewed.  

16. Learned counsel contended that at the stage of making a  

reference, it is the satisfaction of the President in relation  

to the nature of the question and its importance that is  

relevant. As a matter of comity of institutions, this Court  

has always declined to go behind the reasons that  

prevailed upon the President to make a reference and its  

bona fides.  Nevertheless, this Court always has the  

discretion not to answer any such reference or the  

questions raised therein for good reasons.  It was stressed  

that since this Court does not sit in review over the  

satisfaction of the President, the question of jurisdiction  

and of maintainability does not arise.

17. Learned counsel also argued that the premise that earlier  

judgments of this Court are binding in reference  

jurisdiction, and thus any reference, which impinges upon  

an earlier judgment should be returned unanswered, is  

equally fallacious.  It was argued that the principle of stare  

decisis and the doctrine of precedent are generally  

accepted and followed as rules of judicial discipline and not  

jurisdictional fetters and, therefore, this Court is not  

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prevented from re-examining the correctness of an earlier  

decision.  On the contrary, the precedents support the  

proposition that this Court can, when exercising its  

jurisdiction under Article 143(1), examine the correctness  

of past precedents. According to the learned counsel, in  

Keshav Singh, this Court did examine the correctness of  

the judgment in Pandit M.S.M. Sharma Vs. Shri Sri  

Krishna Sinha & Ors.12 (hereinafter referred to as  

“Sharma”).  Explaining the ratio of the decision in  

Cauvery-II, learned counsel submitted that it is clear  

beyond any pale of doubt that the said pronouncement  

does not lay down, as an abstract proposition of law, that  

under Article 143(1), this Court cannot consider the  

correctness of any precedent. What it lays down is that  

once a lis between the parties is decided, the operative  

decree can only be opened by way of a review. According  

to the learned counsel, overruling a judgment —  as a  

precedent —  does not tantamount to reopening the  

decree.

18. Arguing on similar lines, Mr. C.A. Sundaram, learned senior  

12  [1959]  Supp. 1 S.C.R. 806

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counsel appearing on behalf of FICCI, contended that if the  

observations in the 2G Case are read as applying to all  

natural resources and not limited to spectrum, it would  

tantamount to de facto policy formulation by the Court,  

which is beyond the scope of judicial review.  He also took  

a nuanced stance on this Court’s power of reconsideration  

over its precedents.  It was submitted that a precedent can  

be sliced into two parts viz. the decision or operative part  

of an order or decree pertaining to the inter partes dispute  

and the ratio with respect to the position of law; the former  

being beyond this Court’s powers of review once an earlier  

bench of this Court has pronounced an authoritative  

opinion on it, but not the latter.  He thus, urged that this  

Court does have the power to reconsider the principles of  

law laid down in its previous pronouncements even under  

Article 141.

19. Mr. Darius Khambata, learned Advocate General of  

Maharashtra, submitted that observations in the 2G Case  

were made only with regard to spectrum thus, leaving it  

open to this Court to examine the issue with regard to  

alienation of other natural resources.  It was urged that  

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even if broader observations were made with respect to all  

natural resources, it would still be open to this Court under  

Article 143(1) to say otherwise.  He also pointed to certain  

State legislations that prescribe methods other than  

auction and thus, urged this Court to answer the first  

question in the negative lest all those legislations be  

deemed unconstitutional.   

20. Mr. Sunil Gupta, learned senior counsel, appearing on  

behalf of the State of U.P., added that when Article 143(1)  

of the Constitution unfolds a high prerogative of a  

constitutional authority, namely, the President, to consult  

this Court on question of law or fact, it contains a no less  

high prerogative of this Court to report to the President its  

opinion on the question referred, either by making or  

declining to give an answer to the question.  In other  

words, according to the learned counsel, the issue of a  

reference being maintainable at the instance of the  

President is an issue different from the judicial power of  

this Court to answer or not to answer the question posed in  

the reference.  

21. Mr. Ravindra Shrivastava, learned senior counsel  

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appearing on behalf of the State of Chhattisgarh,  

contended that neither history supports nor reality  

warrants auction to be a rule of disposal of all natural  

resources in all situations.  He referred to decisions of this  

Court that unambiguously strike a just balance between  

considerations of power of the State and duty towards  

public good, by leaving the choice of method of allocation  

of natural resources to the State, as long as it conforms to  

the requirements of Article 14.  It was pleaded that the  

State be allowed the choice of methodology of allocation,  

especially in cases where it intends to incentivize  

investments and job creation in backward regions that  

would otherwise have been left untouched by private  

players if resources were given at market prices.

22. To sum up, the objections relating to the maintainability  of  

the Reference converge mainly on the following points: (i)  

the foundational requirement for reference under Article  

143(1) viz. a genuine ‘doubt’ about questions of fact or law  

that the executive labours  under, is absent; (ii) the filing  

and withdrawal of a review petition whose recitals pertain  

to the 2G Case would be an impediment in the exercise of  

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discretion under Article 143(1); (iii) the language in which  

the Reference is couched exhibits mala fides on the part of  

the Executive; (iv) in light of  enunciation of law on the  

point in Cauvery II, entertaining a Presidential reference  

on a subject matter, which has been decided upon directly  

and with finality, is barred; (v) the present Reference is an  

attempt to overturn the judgment of this Court in the 2G  

Case, which is against the spirit of Article 143(1)  of the  

Constitution and (vi) the Executive is adopting the route of  

this Reference to wriggle out of the directions in the 2G  

Case as the same are inconvenient for them to follow.

DISCUSSION:  

23. Before we evaluate the rival  stands on the maintainability  

of the Reference, it would be necessary to examine the  

scope and breadth of Article 143 of the Constitution, which  

reads thus:

“143. Power of President to consult Supreme  Court.—(1) If at any time it appears to the President  that a question of law or fact has arisen, or is likely to  arise, which is of such a nature and of such public  importance that it is expedient to obtain the opinion  of the Supreme Court upon it, he may refer the  question to that Court for consideration and the Court  may, after such hearing as it thinks fit, report to the  President its opinion thereon.

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(2) The President may, notwithstanding anything in  the proviso to article 131, refer a dispute of the kind  mentioned in the said proviso to the Supreme Court  for opinion and the Supreme Court shall, after such  hearing as it thinks fit, report to the President its  opinion thereon.”

A bare reading at the Article would show that it is couched in  

broad terms.  It is plain from the language of Article 143(1) that  

it is not necessary that the question on which the opinion of the  

Supreme Court is sought must have actually arisen. The  

President can make a reference under the said Article even at  

an anterior stage, namely, at the stage when the President is  

satisfied that the question is likely to arise.  The satisfaction  

whether the question meets the pre-requisites of Article 143(1)  

is essentially a matter for the President to decide.  Upon receipt  

of a reference under Article 143(1), the function of this Court is  

to consider the reference; the question(s) on which the  

President has made the reference, on the facts as stated in the  

reference and report to the President its opinion thereon.   

24. Nevertheless, the usage of the word “may”  in the latter  

part of Article 143(1) implies that this Court is not bound to  

render advisory opinion in every reference and may refuse  

to express its opinion for strong, compelling and good  

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reasons. In Keshav Singh, highlighting the difference in  

the phraseology  used in clauses (1) and (2) of Article 143,  

P.B. Gajendragadkar, C.J., speaking for the majority, held  

as follows:

“…whereas in the case of reference made under  Article 143 (2) it is the constitutional obligation of this  Court to make a report on that reference embodying  its advisory opinion, in a reference made under Article  143 (1) there is no such obligation. In dealing with  this latter class of reference, it is open to this Court to  consider whether it should make a report to the  President giving its advisory opinion on the questions  under reference.”

25. Further, even in an earlier judgment in In re: Allocation  

of Lands and Buildings Situate in a Chief  

Commissioner’s Province and in the matter of  

Reference by the Governor-General under S. 213,  

Government of India Act, 193513, the Federal Court had  

said that even though the Court is within its authority to  

refuse to answer a question on a reference, it must be  

unwilling to exercise its power of refusal “except for good  

reasons.”  A similar phrase was used in In Re: The Kerala  

Education Bill, 1957 (supra) when this Court observed  

that opinion on a reference under Article 143(1), may be  

13  A.I.R. (30) 1943 FC 13

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declined in a “proper case” and “for good reasons”.  In Dr.  

M. Ismail Faruqui & Ors. (supra), it was added that a  

reference may not be answered when the Court is not  

competent to decide the question which is based on expert  

evidence or is a political one.

26. Having noted the relevant contours of Article 143(1) of the  

Constitution, we may now deal with the objections to the  

maintainability of the Reference.

27. There is no denying the fact that in the entire Reference  

the word ‘doubt’ has not been used.   It is also true that in  

all previous references, noted in para 5 (supra), it had  

been specifically mentioned that doubts had arisen about  

various issues.  Nonetheless, the fact remains that Article  

143(1) does not use the term ‘doubt’.  No specific format  

has been provided in any of the Schedules of the  

Constitution as to how a reference is to be drawn.  The use  

of the word ‘doubt’  in a reference is also not a  

constitutional command or mandate. Needless to  

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emphasise that the expression, ‘doubt’, which refers to a  

state of uncertainty, may be with regard to a fact or a  

principle.  In P. Ramanatha Aiyar’s, The Major Law  

Lexicon, 4th Edition, the words ‘doubt’  and ‘question’  

have been dealt with in the following manner:-

“Doubt, Question.  These terms express the act of the  mind in staying its decision.  Doubt lies altogether in  the mind; it is a less active feeling than question; by  the former we merely suspend decision; by the latter  we actually demand proofs in order to assist us in  deciding.  We may doubt in silence.  We cannot  question without expressing it directly or indirectly.  He who suggests doubts does it with caution: he who  makes a question throws in difficulties with a degree  of confidence.  We doubt the truth of a position; we  question the veracity of an author.  (Crabb.)”

As per the Concise Oxford Dictionary (Tenth Edition),  

‘question’ means : “a doubt; the raising of a doubt or objection;  

a problem requiring solution”.   

In Black’s Law Dictionary ‘doubt’, as a verb, has been defined  

as follows:

“To question or hold questionable.”

The word ‘doubt’, as a noun, has been described as under:-

“Uncertainty of mind; the absence of a settled opinion  or conviction; the attitude of mind towards the  acceptance of or belief in a proposition, theory, or  

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statement, in which the judgment is not at rest but  inclines alternately to either side.”

28. The afore-extracted recitals of the instant Reference state  

that in the current circumstances, certain questions of law  

with far reaching national and international implications  

have arisen, including in relation to conduct of the auction  

and the regulation of the telecommunications industry in  

accordance with the judgment (2G Case) that may affect  

the flow of FDI in the telecom industry and otherwise in  

other sectors into this country.  Thereafter, it is also stated  

that questions of law that have arisen are of great public  

importance and are of far reaching consequences for the  

development of the country and hence, it is thought  

expedient to obtain the opinion of this Court.  Question  

No.1 of the reference reads as follows:-

“Whether the only permissible method for disposal of  all natural resources across all sectors and in all  circumstances is by the conduct of auctions?”

29. At this juncture, reference may profitably be made to the  

decision in In Re: The Special Courts Bill, 1978 (supra),  

an opinion by a Bench of seven learned Judges, wherein it  

was observed as follows:

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“27.  We were, at one stage of the arguments, so  much exercised over the undefined breadth of the  reference that we were considering seriously whether  in the circumstances it was not advisable to return  the reference unanswered. But the written briefs filed  by the parties and the oral arguments advanced  before us have, by their fullness and ability, helped to  narrow down the legal controversies surrounding the  Bill and to crystallize the issues which arise for our  consideration. We propose to limit our opinion to the  points specifically raised before us.  It will be  convenient to indicate at this stage what those points  are.”

While expressing the hope that, in future, specific questions  

would be framed for the opinion of this Court, Y.V. Chandrachud  

(as his Lordship then was), speaking for the majority,  said:

“30.  We hope that in future, whenever a reference is  made to this Court under Article 143 of the  Constitution, care will be taken to frame specific  questions for the opinion of the Court.  Fortunately, it  has been possible in the instant reference to consider  specific questions as being comprehended within the  terms of the reference but the risk that a vague and  general reference may be returned unanswered is  real and ought to engage the attention of those  whose duty it is to frame the reference.  Were the Bill  not as short as it is, it would have been difficult to  infuse into the reference the comprehension of the  two points mentioned by us above and which we  propose to decide.  A long Bill would have presented  to us a rambling task in the absence of reference on  specific points, rendering it impossible to formulate  succinctly the nature of constitutional challenge to  the provisions of the Bill.”

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30. From the afore-extracted paragraphs, three broad  

principles emerge: (i) a reference should not be vague,  

general and undefined, (ii) this Court can go through the  

written briefs and arguments to narrow down the legal  

controversies, and (iii) when the question becomes  

unspecific and incomprehensible, the risk of returning the  

reference unanswered arises.  In Keshav Singh, this Court  

while dealing with the validity of the reference, referred to  

earlier decisions and opined as follows:

“…It would thus be seen that the questions so far  referred by the President for the Advisory opinion of  this Court under Article 143(1) do not disclose a  uniform pattern and that is quite clearly consistent  with the broad and wide words used in Article  143(1).”

31. An analysis of the afore-noted cases, indicates that neither  

has a particular format been prescribed nor any specific  

pattern been followed in framing references.  The first  

principle relates to the ‘form’  and the second pertains to  

the ‘pattern of content’.  Holistically understood, on the  

ground of form or pattern alone, a reference is not to be  

returned unanswered.  It requires appropriate analysis,  

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understanding and appreciation of the content or the issue  

on which doubt is expressed, keeping in view the concept  

of constitutional responsibility, juridical propriety and  

judicial discretion.

32. Thus, we find it difficult to accept the stand that use of the  

word ‘doubt’ is a necessary condition for a reference to be  

maintainable under Article 143(1). That apart, in our view,  

question No.1, quoted above, is neither vague nor general  

or unspecific, but is in the realm of comprehension which is  

relatable to a question of law.  It expresses a ‘doubt’  and  

seeks the opinion of the Court on that question, besides  

others.

33. In so far as the impact of filing and withdrawal of the  

review application by the Union of India, against the  

decision in the 2G Case on the maintainability of the  

instant Reference is concerned, it is a matter of record that  

in the review petition, certain aspects of the grounds for  

review which have been stated in the recitals of the  

Reference as well as in some questions, were highlighted.  

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However, there is a gulf of difference between the  

jurisdiction exercised by this Court in a review and the  

discretion exercised in answering a reference under Article  

143(1) of the Constitution.  A review is basically guided by  

the well-settled principles for review of a judgment and a  

decree or order passed inter se parties.  The Court in  

exercise of power of review may entertain the review  

under the acceptable and settled parameters.  But, when  

an opinion of this Court is sought by the Executive taking  

recourse to a constitutional power, needless to say, the  

same stands on a different footing altogether.  A review is  

lis specific and the rights of the parties to the controversy  

are dealt with therein, whereas a reference is answered  

keeping in view the terms of the reference and scrutinising  

whether the same satisfies the requirements inherent in  

the language employed under Article 143(1) of the  

Constitution.  In our view, therefore, merely because a  

review had been filed and withdrawn and in the recital the  

narration pertains to the said case, the same would not be  

an embargo or impediment for exercise of discretion to  

answer the Reference.  

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34.  As far as the allegation of mala fide is concerned, it is trite  

that this Court is neither required to go into the truth or  

otherwise of the facts of the recitals nor can it go into the  

question of bona fides or otherwise of the authority making  

a reference.  [See: In Re: Presidential Poll (supra)].  To  

put it differently, the constitutional power to seek opinion  

of this Court rests with the President.  The only discretion  

this Court has is either to answer the reference or  

respectfully decline to send a report to the President.  

Therefore, the challenge on the ground of mala fide, as  

raised, is unsustainable.

35. The principal objection to the maintainability of the  

Reference is that it is an indirect endeavour to unsettle and  

overturn the verdict in the 2G Case, which is absolutely  

impermissible.  The stand of the objectors is that the 2G  

Case is an authoritative precedent in respect of the  

principle or proposition of law that all natural resources are  

to be disposed of by way of public auction and, therefore,  

the Reference should be held as not maintainable.  

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Emphasis in this behalf was on paragraphs 85 and 94 to 96  

of the said judgment.  In support of the proposition, heavy  

reliance was placed on Cauvery II.   

36. At the outset, we may note that the learned Attorney  

General has more than once stated that the Government of  

India is not questioning the correctness of the directions in  

the 2G Case, in so far as the allocation of spectrum is  

concerned, and in fact the Government is in the process of  

implementing the same, in letter and spirit. Therefore, in  

the light of the said statement, we feel that it would be  

unnecessary to comment on the submission that the  

Reference is an attempt to get an opinion to unsettle the  

decision and directions of this Court in the 2G Case.  

Nevertheless, since in support of the aforesaid submission,  

the opinion of this Court in Cauvery II has been referred  

to and relied upon in extenso, it would be appropriate to  

decipher the true ratio of Cauvery II, the lynchpin of the  

opposition to maintainability of the present Reference.

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37. Cauvery II was preceded by State of Tamil Nadu Vs.  

State of Karnataka & Ors.14 (hereinafter referred to as  

“Cauvery I”), which dwelled on the issue whether the  

Cauvery Water Disputes Tribunal (for short “the Tribunal”)  

had the power to grant interim relief.  In that case,  

applications filed by the State of Tamil Nadu for urgent  

interim reliefs were rejected by the Tribunal on the ground  

that they were not maintainable.  This order was  

challenged, resulting in the judgment dated 26th April,  

1991 by this Court, where it was held as follows:

“15. Thus, we hold that this Court is the ultimate  interpreter of the provisions of the Interstate Water  Disputes Act, 1956 and has an authority to decide the  limits, powers and the jurisdiction of the Tribunal  constituted under the Act.  This Court has not only the  power but obligation to decide as to whether the  Tribunal has any jurisdiction or not under the Act, to  entertain any interim application till it finally decides  the dispute referred to it…”

38. The Tribunal had ruled that since it was not like other  

courts with inherent powers to grant interim relief, only in  

case the Central Government referred a case for interim  

relief to it, would it have the jurisdiction to grant the same.  

14  1991 Supp (1) SCC 240

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Inter-alia, the Court observed that the Tribunal was wrong  

in holding that the Central Government had not made any  

reference for granting any interim relief, and concluded  

that the interim reliefs prayed for clearly fell within the  

purview of the dispute referred by the Central  

Government.  Accordingly, the appeals preferred by the  

State of Tamil Nadu were allowed and the Tribunal was  

directed to decide the applications for interim relief.  

However, the Court did not decide the larger question of  

whether a Tribunal, constituted under the Interstate Water  

Disputes Act, 1956 had the power to grant an interim  

relief, though the answer to the same may be deduced  

from the final direction.

39. In pursuance of these directions, the Tribunal decided the  

application and vide its order dated 25th June, 1991,  

proceeded to issue certain directions to the State of  

Karnataka.  Thereafter, on 25th July 1991, the Governor of  

Karnataka issued an Ordinance named “The Karnataka  

Cauvery Basin Irrigation Protection Ordinance, 1991”.  Hot  

on the heels of the Ordinance, the State of Karnataka also  

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instituted a suit under Article 131 of the Constitution  

against the State of Tamil Nadu for a declaration that the  

Tribunal’s order granting interim relief was without  

jurisdiction and, therefore, null and void, etc.  The  

Ordinance was replaced by Act 27 of 1991.  In the context  

of these developments, the President made a reference to  

this Court under Article 143(1) of the Constitution, posing  

three questions for opinion.  The third question of the  

reference, relevant for the present Reference, was :-

“3. Whether a Water Disputes Tribunal constituted  under the Act is competent to grant any interim relief  to the parties to the dispute.”

However, while dealing with the reference in Cauvery II, the  

Court split the question, viz., whether a Water Disputes Tribunal  

constituted under the Act is competent to grant any interim  

relief into two parts: (i) when a reference for grant of interim  

relief is made to the Tribunal, and (ii) when no such reference is  

made to it. It was contended by the States of Karnataka and  

Kerala that if the Tribunal did not have power to grant interim  

relief, the Central Government would be incompetent to make a  

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reference for the purpose in the first place and the Tribunal in  

turn would have no jurisdiction to entertain such reference, if  

made. Dealing with the said submission, after making a  

reference to the earlier order, this Court observed that once the  

Central Government had made a reference to the Tribunal for  

consideration of the claim for interim relief, prayed for by the  

State of Tamil Nadu, the Tribunal had jurisdiction to consider the  

said request being a part of the reference itself. Implicit in the  

said decision was the finding that the subject of interim relief  

was a matter connected with or relevant to the water dispute  

within the meaning of Section 5(1) of the said Act.  It was held  

that the Central Government could refer the matter for granting  

interim relief to the Tribunal for adjudication.

40. The consequence of the Court in coming to the conclusion,  

while replying to the third question was that the Tribunal  

did not have the jurisdiction to make an interim award or  

grant interim relief, would have not only resulted in the  

Court overruling its earlier decision between the two  

contending parties i.e. the two States, but it would have  

also then required the Court to declare the order of the  

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Tribunal as being without jurisdiction. The Court therefore,  

said :

“83…Although this Court by the said decision has  kept open the question, viz., whether the Tribunal has  incidental, ancillary, inherent or implied power to  grant the interim relief when no reference for grant of  such relief is made to it, it has in terms concluded the  second part of the question. We cannot, therefore,  countenance a situation whereby question 3 and for  that matter questions 1 and 2 may be so construed  as to invite our opinion on the said decision of this  Court. That would obviously be tantamount to our  sitting in appeal on the said decision which it is  impermissible for us to do even in adjudicatory  jurisdiction. Nor is it competent for the President to  invest us with an appellate jurisdiction over the said  decision through a Reference under Article 143 of the  Constitution.”

These observations would suggest that the Court declined to  

construe Article 143 as a power any different from its  

adjudicative powers and for that reason, said that what could  

not be done in the adjudicatory process would equally not be  

achieved through the process of a reference.  

41. The expression, “sitting in appeal” was accurately used. An  

appellate court vacates the decree (or writ, order or  

direction) of the lower court when it allows an appeal -  

which is what this Court was invited to do in Cauvery I.  

This Court, in that appeal decided earlier, held that the  

Tribunal had the jurisdiction to pass the interim order  

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sought by the State of Tamil Nadu.  To nullify the interim  

order passed by the Tribunal, pursuant to a direction of the  

Supreme Court, on the ground that it was without  

jurisdiction, would necessarily require vacating the  

direction of the Supreme Court to the Tribunal to exercise  

its jurisdiction and decide the interim matter. Para 85 of  

that decision puts the matter beyond any pale of doubt:

“85... In the first instance, the language of clause  (1) of Article 143 far from supporting Shri  Nariman's contention is opposed to it. The said  clause empowers the President to refer for this  Court's opinion a question of law or fact which has  arisen or is likely to arise. When this Court in its  adjudicatory jurisdiction pronounces its  authoritative opinion on a question of law, it cannot  be said that there is any doubt about the question  of law or the same is res integra so as to require  the President to know what the true position of law  on the question is. The decision of this Court on a  question of law is binding on all courts and  authorities. Hence under the said clause the  President can refer a question of law only when  this Court has not decided it. Secondly, a decision  given by this Court can be reviewed only under  Article 137 read with Rule 1 of Order 40 of the  Supreme Court Rules, 1966 and on the conditions  mentioned therein. When, further, this Court  overrules the view of law expressed by it in an  earlier case, it does not do so sitting in appeal and  exercising an appellate jurisdiction over the earlier  decision. It does so in exercise of its inherent  power and only in exceptional circumstances such  as when the earlier decision is per incuriam or is  delivered in the absence of relevant or material  

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facts or if it is manifestly wrong and productive of  public mischief. [See: Bengal Immunity Company  Ltd. v. State of Bihar (1955)  2 SCR 603]. Under the  Constitution such appellate jurisdiction does not  vest in this Court, nor can it be vested in it by the  President under Article 143. To accept Shri  Nariman's contention would mean that the  advisory jurisdiction under Article 143 is also an  appellate jurisdiction of this Court over its own  decision between the same parties and the  executive has a power to ask this Court to revise  its decision. If such power is read in Article 143 it  would be a serious inroad into the independence of  judiciary.”

42. Eventually, the reference was answered in respect of  

question No.3 in the  following terms:-

“Question No.3: (i) A Water Disputes Tribunal  constituted under the Act is competent to grant any  interim relief to the parties to the dispute when a  reference for such relief is made by the Central  Government;

(ii)  whether the Tribunal has power to grant  interim relief when no reference is made by the  Central Government for such relief is a question which  does not arise in the facts and circumstances under  which the Reference is made.  Hence we do not deem  it necessary to answer the same.”

43. The main emphasis of Mr. Soli Sorabjee was on the second  

part of paragraph 85, which, according to him, prohibits  

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this Court from overruling a view expressed by it  

previously under Article 143(1).  We are not persuaded to  

agree with the learned senior counsel.  The paragraph has  

to be read carefully.          Sawant J. first considers the case  

of a “decision”  of this Court whereas in the subsequent  

sentence he considers a “view of law”  expressed by the  

Court, and attempts to explain the difference between the  

approaches to these two situations.  These words are  

sometimes used interchangeably but not hereinabove.  We  

believe that Justice Sawant consciously draws a difference  

between the two by using the words “When, further, this  

Court overrules the view of law…”  after discussing the  

case of a “decision”.

44. Black’s Law Dictionary defines a “decision”  as “a  

determination arrived at after consideration of facts, and,  

in legal context, law”; an “opinion” as “the statement by a  

judge or court of the decision reached in regard to a cause  

tried or argued before them, expounding the law as  

applied to the case, and detailing the reasons upon which  

the judgment is based”; and explains the difference  

between a “decision” and “opinion” as follows:

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“Decision is not necessarily synonymous with  ‘opinion’.  A decision of the Court is its judgment; the  opinion is the reasons given for that judgment, or the  expression of the views of the judge.”

45. Therefore, references in Para 85 to “decision” and “view of  

law” must be severed from each other.  The learned Judge  

observes that in case of a decision, the appellate structure  

is exhausted after a pronouncement by the Supreme  

Court.  Therefore, the only option left to the parties is of  

review or curative jurisdiction (a remedy carved out in the  

judgment in Rupa Ashok Hurra Vs. Ashok Hurra &  

Anr.15).  After the exercise of those limited options, the  

concerned parties have absolutely no relief with regard to  

the dispute; it is considered settled for eternity in the eyes  

of the law.  However what is not eternal and still malleable  

in the eyes of law is the opinion or “view of law”  

pronounced in  the course of reaching the decision.  Justice  

Sawant clarifies that unlike this Court’s appellate power, its  

power to overrule a previous precedent is an outcome of  

its inherent power   when he says, “…it does not do so  

sitting in appeal and exercising an appellate jurisdiction  

15  (2002) 4 SCC 388

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over the earlier decision.  It does so in exercise of its  

inherent power and only in exceptional circumstances….”  

This Court has pointed out the difference between the two  

expressions in Rupa Ashok Hurra (supra), in the  

following words:

“24. There is no gainsaying that the Supreme Court is  the court of last resort — the final court on questions  both of fact and of law including constitutional law.  The law declared by this Court is the law of the land;  it is precedent for itself and for all the courts/tribunals  and authorities in India. In a judgment there will be  declaration of law and its application to the facts of  the case to render a decision on the dispute between  the parties to the lis. It is necessary to bear in mind  that the principles in regard to the highest court  departing from its binding precedent are different  from the grounds on which a final judgment between  the parties, can be reconsidered. Here, we are mainly  concerned with the latter. However, when  reconsideration of a judgment of this Court is sought  the finality attached both to the law declared as well  as to the decision made in the case, is normally  brought under challenge…”

Therefore, there are two limitations - one jurisdictional and the  

other self-imposed.

46. The first limitation is that a decision of this Court can be  

reviewed only under Article 137 or a Curative Petition and  

in no other way. It was in this context that in para 85 of  

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Cauvery II, this Court had stated that the President can  

refer a question of law when this Court has not decided it.  

Mr. Harish Salve, learned senior counsel, is right when he  

argues that once a lis between parties is decided, the  

operative decree can only be opened in review. Overruling  

the judgment - as a precedent - does not reopen the  

decree.

47. The second limitation, a self imposed rule of judicial  

discipline, was that overruling the opinion of the Court on a  

legal issue does not constitute sitting in appeal, but is done  

only in exceptional circumstances, such as when the  

earlier decision is per incuriam or is delivered in the  

absence of relevant or material facts or if it is manifestly  

wrong and capable of causing public mischief.  For this  

proposition, the Court relied upon the judgment in the  

Bengal Immunity case (supra) wherein it was held that  

when Article 141 lays down that the law declared by this  

Court shall be binding on all courts within the territory of  

India, it quite obviously refers to courts other than this  

Court; and that the Court would normally follow past  

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precedents save and except where it was necessary to  

reconsider the correctness of law laid down in that  

judgment.  In fact, the overruling of a principle of law is not  

an outcome of appellate jurisdiction but a consequence of  

its inherent power.  This inherent power can be exercised  

as long as a previous decree vis-à-vis lis inter partes is not  

affected.  It is the attempt to overturn the decision of a  

previous case that is problematic which is why the Court  

observes that “under the Constitution such appellate  

jurisdiction does not vest in this Court, nor can it be vested  

in it by the President under Article 143.”

48. Therefore, the controversy in Cauvery II was covered by  

the decision rendered by this Court in Cauvery I between  

the parties and the decision operated as res judicata and  

hence, it was opined that discretion under Article 143(1)  

could not be exercised. It has also been observed that this  

Court had analysed the relevant provisions of the Inter-

State Water Disputes Act, 1956 and thereafter had come  

to the conclusion that the Tribunal had jurisdiction to grant  

interim relief if the question of granting interim relief  

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formed part of the reference.  On this bedrock it was held  

that the decision operated as res judicata. It is, therefore,  

manifest from Cauvery II that the Court was clearly not  

opposed to clarifying the ratio of a previous judgment in  

Cauvery I, in the course of an advisory jurisdiction.  Afore-

extracted para 85 of Cauvery II, restricts this Court’s  

advisory jurisdiction on the limited point of overturning a  

decided issue vis-à-vis a ‘dispute’ or lis inter partes.  

49. Finally a seven Judge Bench of this Court has clearly held  

that this Court, under Article 143(1), does have the power  

to overrule a previous view delivered by it.  Justice  

Chandrachud, C.J. in  In re: The Special Courts Bill  

(supra) held:

“101…We are inclined to the view that though it is  always open to this Court to re-examine the question  already decided by it and to overrule, if necessary, the  view earlier taken by it, insofar as all other courts in the  territory of India are concerned they ought to be bound  by the view expressed by this Court even in the exercise  of its advisory jurisdiction under Article 143(1) of the  Constitution.”

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50. There is a catena of pronouncements in which this Court  

has either explained, clarified or read down the ratio of  

previous judgments. In the very first reference, In Re:  

Delhi Laws Act, 1912 (supra), the reference was made  

by reason of a judgment of the Federal Court in Jatindra  

Nath Gupta Vs. The Province of Bihar & Ors.16. The  

background of that reference was explained by Mukherjea,  

J. as under:

“The necessity of seeking the advisory opinion of this  Court is stated to have arisen from the fact that  because of the decision of the Federal Court in  Jatindra Nath Gupta v. The Province of Bihar, which  held the proviso to sub-section (3) of Section 1 of the  Bihar Maintenance of Public Order Act, 1947, ultra  vires the Bihar Provincial Legislature, by reason of its  amounting to a delegation of its legislative powers to  an extraneous authority, doubts have arisen  regarding the validity of the three legislative  provisions mentioned above, the legality of the first  and the second being actually called in question in  certain judicial proceedings which are pending before  some of the High Courts in India.”

Justice Das in the same opinion, while noting that reliance was  

placed by learned counsel for the interveners on the judgment  

of the Federal Court in Jatindra Nath Gupta (supra), recorded  

that the learned Attorney General had strenuously challenged  

16  [1949-50] F.C.R. 595

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the correctness of the decision of the majority of the Federal  

Court in that case. Inter-alia, observing that the reference was  

in a way occasioned by that decision, the learned Judge held as  

follows:

“I feel bound to say, with the utmost humility and for  reasons given already, that the observations of the  majority of the Federal Court in that case went too far  and, in agreement with the learned Attorney-General,  I am unable to accept them as correct exposition of  the principles relating to the delegation of legislative  power.”

51. In this context, it would be beneficial to refer to Keshav  

Singh’s case.  In the said case, a reference was made by  

the President which fundamentally pertained to the  

privileges of the Legislative Assembly and exercise of  

jurisdiction by a Bench of the High Court. The High Court  

entertained a writ petition under Article 226 of the  

Constitution, challenging the decision of the Assembly  

committing one Keshav Singh, who was not one of its  

members, to prison for its contempt.  The issue was  

whether by entertaining the writ petition, the Judges of the  

High Court were in contempt of the Legislature for  

infringement of its privileges and immunities.  For the  

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same, this Court proceeded to construe the relevant  

provisions contained in Article 194(3) and its  

harmonization with other Articles of the Constitution,  

especially Articles 19(1)(a), 21 & 22. In that context, the  

decision in “Sharma” (supra) came up for consideration.  

One of the questions that arose in Sharma’s case was the  

impact of Articles 19(1)(a) and 21 on the provisions  

contained in the latter part of Article 194(3).  The majority  

view was that the privilege in question was subsisting at  

the relevant time and must, therefore, deemed to be  

included under the latter part of Article 194(3).  It was held  

that Article 19(1)(a) did not apply under the rule of  

harmonious construction, where Article 19(1)(a) was in  

direct conflict with Article 194(3). The particular provision  

in the latter Article would prevail over the general  

provision contained in the former.  It was further held that  

though Article 21 applied, it had not been contravened.  

The minority view, on the other hand, held that the  

privilege in question had not been established; even  

assuming the same was established and it was to be  

included in the latter part of Article 194(3), yet it must be  

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controlled by Article 19(1)(a) on the ground that  

Fundamental Rights guaranteed by Part III of the  

Constitution were of paramount importance and must  

prevail over a provision like the one contained in Article  

194(3) which may be inconsistent with them.  The majority  

decision also commented on the decision in Gunupati  

Keshavram Reddy Vs. Nafisul Hasan & the State of  

U.P.17 and observed that the said decision was based  

entirely on a concession and could not, therefore, be  

deemed to be a considered decision of this Court.  

52. The decision in Keshavram Reddy (supra) dealt with the  

applicability of Article 22(2) to a case falling under the  

latter part of Article 194(3).  It is worth noting that the  

minority opinion of Sharma treated Keshavram Reddy,  

as expressing a considered opinion, which was binding on  

the Court.  In Keshav Singh  it was opined that in  

Sharma’s case, the majority decision held in terms that  

Article 21 was applicable to the contents of Article 194(3),  

but on merits, it came to the conclusion that the alleged  

17  AIR 1954 SC 636

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contravention had not been proved.  Commenting on the  

minority view it was opined that it was unnecessary to  

consider whether Article 21 as such applied because the  

said view treated all the Fundamental Rights guaranteed  

by Part III as paramount, and therefore, each one of them  

could control the provisions of Article 194(3).

53. At that juncture, the Bench stated that in the case of  

Sharma, contentions urged by the petitioner did not raise  

a general issue as to the relevance and applicability of all  

the fundamental rights guaranteed by Part III at all. The  

contravention of only two Articles was pleaded and they  

were Articles 19(1)(a) and 21.  Strictly speaking, it was,  

therefore, unnecessary to consider the larger issue as to  

whether the latter part of Article 194(3) was subject to the  

fundamental rights in general, and indeed, even on the  

majority view it could not be said that the said view  

excluded the application of all fundamental rights, for the  

obvious and simple reason that Article 21 was held to be  

applicable and the merits of the petitioner’s arguments  

about its alleged contravention in his case were examined  

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and rejected.  Therefore, it was not right to read the  

majority decision as laying down a general proposition that  

whenever there is a conflict between the provisions of the  

latter part of Article 194(3) and any of the provisions of the  

fundamental rights guaranteed by Part III, the latter must  

always yield to the former.  It was further observed that  

the majority decision had incidentally commented on the  

decision in Keshavram Reddy’s case (supra).  Apart from  

that there was no controversy about the applicability of  

Article 22 in that case, and, therefore, the comment made  

by the majority judgment on the earlier decision was partly  

not accurate.  Their Lordships adverted to the facts in  

Sharma’s case wherein the majority judgment had  

observed that it “proceeded entirely on a concession of  

counsel and cannot be regarded as a considered opinion  

on the subject.” After so stating, the Bench opined thus:

“…There is no doubt that the first part of this  comment is not accurate. A concession was made by  the Attorney-General not on a point of law which was  decided by the Court, but on a  point of fact; and so,  this part of the comment cannot strictly be said to be  justified.  It is, however, true that there is no  discussion about the merits of the contention raised  on behalf of Mr. Mistry and to that extent, it may have  been permissible to the majority judgment to say that  

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it was not a considered opinion of the Court. But, as  we have already pointed out, it was hardly necessary  for the majority decision to deal with the point  pertaining to the applicability of Article 22(2),  because that point did not arise in the proceedings  before the Court in Pandit Sharma’s case.  That is why  we wish to make it clear that the obiter observations  made in the majority judgment about the validity or  correctness of the earlier decision of this Court in  Gunupati Keshavram Reddy’s case should not be  taken as having decided the point in question. In  other words, the question as to whether Article 22(2)  would apply to such a case may have to be  considered by this Court if and when it becomes  necessary to do so.”

54. From the aforesaid decision it is clear that while exercising  

jurisdiction under Article 143(1) of the Constitution this  

Court can look into an earlier decision for the purpose of  

whether the contentions urged in the previous decision did  

raise a general issue or not; whether it was necessary to  

consider the larger issue that did not arise; and whether a  

general proposition had been laid down. It has also been  

stated that where no controversy arose with regard to  

applicability of a particular facet of constitutional law, the  

comments made in a decision could be treated as not  

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accurate; and further it could be opined that in an earlier  

judgment there are certain obiter observations.  

55. Thus, in Keshav Singh, a seven-Judge Bench, while  

entertaining a reference under Article  143(1), dealt with a  

previous decision in respect of its interpretation involving a  

constitutional principle in respect of certain Articles, and  

proceeded to opine that the view expressed in Sharma’s  

case, in relation to a proposition laid down in Keshavram  

Reddy’s case, was inaccurate.  

56. At this stage, it is worthy to refer to Supreme Court  

Advocates-on-Record Association and Ors. Vs.  Union  

of India18. J.S. Verma, J., (as his Lordship then was)  

speaking for the majority, apart from other conclusions  

relating to appointment of Judges and the Chief Justices,  

while dealing with transfer, expressed thus:

18  (1993) 4 SCC 441

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“(8) Consent of the transferred Judge/Chief  Justice is not required for either the first or any  subsequent transfer from one High Court to another.

(9) Any transfer made on the recommendation  of the Chief Justice of India is not to be deemed to be  punitive, and such transfer is not justiciable on any  ground.

(10) In making all appointments and transfers,  the norms indicated must be followed. However, the  same do not confer any justiciable right in anyone.

(11) Only limited judicial review on the grounds  specified earlier is available in matters of  appointments and transfers.”

As far as the ground of limited judicial review is concerned the  

majority opined thus:

“481. These guidelines in the form of norms are not  to be construed as conferring any justiciable right in  the transferred Judge. Apart from the constitutional  requirement of a transfer being made only on the  recommendation of the Chief Justice of India, the  issue of transfer is not justiciable on any other  ground, including the reasons for the transfer or their  sufficiency. The opinion of the Chief Justice of India  formed in the manner indicated is sufficient safeguard  and protection against any arbitrariness or bias, as  well as any erosion of the independence of the  judiciary.

482. …Except on the ground of want of consultation  with the named constitutional functionaries or lack of  any condition of eligibility in the case of an  

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appointment, or of a transfer being made without the  recommendation of the Chief Justice of India, these  matters are not justiciable on any other ground,  including that of bias, which in any case is excluded  by the element of plurality in the process of decision- making.”

57. In Special Reference No. 1 of 1998,  (commonly  

referred as the “Second Judges Case”),  question No. 2  

reads as follows:

“(2) Whether the transfer of Judges is judicially  reviewable in the light of the observation of the  Supreme Court in the aforesaid judgment that ‘such  transfer is not justiciable on any ground’  and its  further observation that limited judicial review is  available in matters of transfer, and the extent and  scope of judicial review.”

While answering the same, the Bench opined thus:

“37. It is to our mind imperative, given the gravity  involved in transferring High Court Judges, that the  Chief Justice of India should obtain the views of the  Chief Justice of the High Court from which the  proposed transfer is to be effected as also the Chief  Justice of the High Court to which the transfer is to be  effected. This is in accord with the majority judgment  in the Second Judges case which postulates  consultation with the Chief Justice of another High  Court. The Chief Justice of India should also take into  account the views of one or more Supreme Court  Judges who are in a position to provide material which  would assist in the process of deciding whether or not  a proposed transfer should take place. These views  should be expressed in writing and should be  considered by the Chief Justice of India and the four  seniormost puisne Judges of the Supreme Court.  

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These views and those of each of the four seniormost  puisne Judges should be conveyed to the Government  of India along with the proposal of transfer. Unless the  decision to transfer has been taken in the manner  aforestated, it is not decisive and does not bind the  Government of India.”

In the conclusion their Lordships clearly state as follows:

“1. The expression “consultation with the Chief Justice  of India”  in Articles 217(1) and 222(1) of the  Constitution of India requires consultation with a  plurality of Judges in the formation of the opinion of  the Chief Justice of India. The sole individual opinion  of the Chief Justice of India does not constitute  “consultation” within the meaning of the said articles.

2. The transfer of puisne Judges is judicially  reviewable only to this extent: that the  recommendation that has been made by the Chief  Justice of India in this behalf has not been made in  consultation with the four seniormost puisne Judges of  the Supreme Court and/or that the views of the Chief  Justice of the High Court from which the transfer is to  be effected and of the Chief Justice of the High Court  to which the transfer is to be effected have not been  obtained.”

58. From the aforesaid, it is demonstrable that while  

entertaining the reference under Article 143(1), this Court  

had analysed the principles enunciated in the earlier  

judgment and also made certain modifications. The said  

modifications may be stated as one of the mode or method  

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of inclusion by way of modification without changing the  

ratio decidendi. For the purpose of validity of a reference,  

suffice it to say, dwelling upon an earlier judgment is  

permissible. That apart, one cannot be oblivious of the fact  

that the scope of limited judicial review, in the Second  

Judges Case, which otherwise is quite restricted, was  

slightly expanded in the Court’s opinion to the Presidential  

reference.  

59. It is of some interest to note that almost every reference,  

filed under Article 143(1), has witnessed challenge as to its  

maintainability on one ground or the other, but all the  

same, the references have been answered, except in Dr.  

M. Ismail Faruqui & Ors. (supra), which was returned  

unanswered, mainly on the ground that the reference did  

not serve a constitutional purpose.

60. From the aforesaid analysis, it is quite vivid that this Court  

would respectfully decline to answer a reference if it is  

improper, inadvisable and undesirable; or the questions  

formulated have purely socio-economic or political  

reasons, which have no relation whatsoever with any of the  

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provisions of the Constitution or otherwise are of no  

constitutional significance; or  are incapable of being  

answered; or would not subserve any purpose; or there is  

authoritative pronouncement of this Court which  has  

already decided the question referred.

61. In the case at hand, it is to be scrutinized whether the 2G  

Case is a decision which has dealt with and decided the  

controversy encapsulated in question No. 1 or meets any  

of the criteria mentioned above.  As we perceive, the  

question involves interpretation of a constitutional  

principle inherent under Article 14 of the Constitution and  

it is of great public importance as it deals with  

allocation/alienation/disposal/ distribution of natural  

resources.  Besides, the question whether the 2G Case is  

on authoritative pronouncement in that regard, has to be  

looked into and only then an opinion can be expressed.  

For the said purpose all other impediments do not  

remotely come into play in the present Reference.

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62. We are, therefore, of the view that as long as the decision  

with respect to the allocation of spectrum licenses is  

untouched, this Court is within its jurisdiction to evaluate  

and clarify the ratio of  the  judgment in the 2G Case. For  

the purpose of this stage of argumentation, it needs little  

emphasis, that we have the jurisdiction to clarify the ratio  

of the judgment in 2G Case, irrespective of whether we  

actually choose to do so or not.  Therefore, the fact that  

this Reference may require us to say something different  

to what has been enunciated in the 2G Case as a  

proposition of law, cannot strike at the root of the  

maintainability of the Reference. Consequently, we reject  

the preliminary objection and hold that this Reference is  

maintainable, notwithstanding its effect on the ratio of the  

2G Case, as long as the decision in that case qua lis inter  

partes is left unaffected.

ON     MERITS  :

63. This leads us to the merits of the controversy disclosed in  

the questions framed in the Reference for our advisory  

opinion.   

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64. As already pointed out, the judgment in the 2G Case  

triggered doubts about the validity of methods other than  

‘auction’ for disposal of natural resources which, ultimately  

led to the filing of the present Reference.  Therefore,  

before we proceed to answer question No.1, it is  

imperative to understand what has been precisely stated  

in the 2G Case and decipher the law declared in that case.

65. All the counsel agreed that paragraphs 94 to 96 in the said  

decision are the repository of the ratio vis-à-vis disposal of  

natural resources in the 2G Case.  On the one hand it was  

argued that these paragraphs lay down, as a proposition of  

law, that all natural resources across all sectors, and in all  

circumstances are to be disposed of by way of public  

auction, and on the other, it was urged that the  

observations therein were made only qua spectrum.  

Before examining the strength of the rival stands, we may  

briefly recapitulate the principles that govern the  

determination of the ‘law declared’ by a judgment and its  

true ratio.

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66. Article 141 of the Constitution lays down that the ‘law  

declared’  by the Supreme Court is binding upon all the  

courts within the territory of India.  The ‘law declared’ has  

to be construed as a principle of law that emanates from a  

judgment, or an interpretation of a law or judgment by the  

Supreme Court, upon which, the case is decided. [See:  

Fida Hussain & Ors. Vs. Moradabad Development  

Authority & Anr.19].  Hence, it flows from the above that  

the ‘law declared’ is the principle culled out on the reading  

of a judgment as a whole in light of the questions raised,  

upon which the case is decided. [Also see: Ambica  

Quarry Works Vs. State of Gujarat & Ors.20 and  

Commissioner of Income Tax Vs. Sun Engineering  

Works (P) Ltd.21].  In other words, the ‘law declared’ in a  

judgment, which is binding upon courts, is the ratio  

decidendi of the judgment. It is the essence of a decision  

and the principle upon which, the case is decided, which  

has to be ascertained in relation to the subject-matter of  

the decision.  

19  (2011) 12 SCC 615 20  (1987) 1 SCC 213 21  (1992) 4 SCC 363

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67. Each case entails a different set of facts and a decision is a  

precedent on its own facts; not everything said by a Judge  

while giving a judgment can be ascribed precedental  

value. The essence of a decision that binds the parties to  

the case is the principle upon which the case is decided  

and for this reason, it is important to analyse a decision  

and cull out from it, the ratio decidendi. In the matter of  

applying precedents, the erudite Justice Benjamin Cardozo  

in “The Nature of a Judicial Process”, had said that “if  

the judge is to pronounce it wisely, some principles of  

selection there must be to guide him along all potential  

judgments that compete for recognition”  and “almost  

invariably his first step is to examine and compare them;”  

“it is a process of search, comparison and little more” and  

ought not to be akin to matching “the colors of the case at  

hand against the colors of many sample cases” because in  

that case “the man who had the best card index of the  

cases would also be the wisest judge”.  Warning against  

comparing precedents with matching colours of one case  

with another, he summarized the process, in case the  

colours don’t match, in the following wise words:-

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“It is when the colors do not match, when the  references in the index fail, when there is no decisive  precedent, that the serious business of the judge  begins.  He must then fashion law for the litigants  before him.  In fashioning it for them, he will be  fashioning it for others.  The classic statement is  Bacon’s: “For many times, the things deduced to  judgment may be meum and tuum, when the reason  and consequence thereof may trench to point of  estate.  The sentence of today will make the right and  wrong of tomorrow.”

68. With reference to the precedential value of decisions, in  

State of Orissa & Ors. Vs. Md. Illiyas22 this Court  

observed:

“…According to the well-settled theory of precedents,  every decision contains three basic postulates: (i)  findings of material facts, direct and inferential. An  inferential finding of facts is the inference which the  Judge draws from the direct, or perceptible facts; (ii)  statements of the principles of law applicable to the  legal problems disclosed by the facts; and (iii)  judgment based on the combined effect of the above.  A decision is an authority for what it actually decides.  What is of the essence in a decision is its ratio and not  every observation found therein nor what logically  flows from the various observations made in the  judgment…”  

69. Recently, in Union of India Vs. Amrit Lal Manchanda &  

Anr.23, this Court has observed as follows:

22  (2006) 1 SCC 275 23  (2004) 3 SCC 75

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“…Observations of courts are neither to be read as  Euclid's theorems nor as provisions of the statute and  that too taken out of their context. These  observations must be read in the context in which  they appear to have been stated. Judgments of courts  are not to be construed as statutes. To interpret  words, phrases and provisions of a statute, it may  become necessary for Judges to embark into lengthy  discussions but the discussion is meant to explain and  not to define. Judges interpret statutes, they do not  interpret judgments. They interpret words of statutes;  their words are not to be interpreted as statutes.”

70. It is also important to read a judgment as a whole keeping  

in mind that it is not an abstract academic discourse with  

universal applicability, but heavily grounded in the facts  

and circumstances of the case. Every part of a judgment is  

intricately linked to others constituting a larger whole and  

thus, must be read keeping the logical thread intact. In this  

regard, in Islamic Academy of Education & Anr. Vs.  

State of Karnataka & Ors.24, the Court made the  

following observations:

“The ratio decidendi of a judgment has to be found  out only on reading the entire judgment. In fact, the  ratio of the judgment is what is set out in the  judgment itself. The answer to the question would  necessarily have to be read in the context of what is  set out in the judgment and not in isolation. In case of  any doubt as regards any observations, reasons and  

24  (2003) 6 SCC 697

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principles, the other part of the judgment has to be  looked into. By reading a line here and there from the  judgment, one cannot find out the entire ratio  decidendi of the judgment.”

71. The ratio of the 2G Case must, therefore, be understood  

and appreciated in light of the above guiding principles.

72. In the 2G Case, the Bench framed five questions.  

Questions No. (ii) and (v) pertain to the factual matrix and  

are not relevant for settling the controversy at hand.  The  

remaining three questions are reproduced below:

“(i) Whether the Government has the right to  alienate, transfer or distribute natural  resources/national assets otherwise than by following  a fair and transparent method consistent with the  fundamentals of the equality clause enshrined in the  Constitution?

(iii) Whether the exercise undertaken by DoT  from September 2007 to March 2008 for grant of UAS  licences to the private respondents in terms of the  recommendations made by TRAI is vitiated due to  arbitrariness and mala fides and is contrary to public  interest?

(iv) Whether the policy of first-come-first-served  followed by DoT for grant of licences is ultra vires the  provisions of Article 14 of the Constitution and  whether the said policy was arbitrarily changed by the  Minister of Communications and Information  Technology (hereinafter referred to as “the Minister of  

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Communications and Information Technology”),  without consulting TRAI, with a view to favour some of  the applicants?”

73. While dealing with question No.(i), the Court observed that  

the State is empowered to distribute natural resources as  

they constitute public property/national assets.  Thereafter,  

the Bench observed as follows:

“75.…while distributing natural resources the State is  bound to act in consonance with the principles of  equality and public trust and ensure that no action is  taken which may be detrimental to public interest.  Like any other State action, constitutionalism must be  reflected at every stage of the distribution of natural  resources. In Article 39(b) of the Constitution it has  been provided that the ownership and control of the  material resources of the community should be so  distributed so as to best subserve the common good,  but no comprehensive legislation has been enacted to  generally define natural resources and a framework  for their protection...”

74. The learned Judges adverted to the ‘public trust doctrine’  

as enunciated in The Illinois Central Railroad Co. Vs.  

The People of the State of Illinois25; M.C. Mehta Vs.  

Kamal Nath & Ors.26; Jamshed Hormusji Wadia Vs.  

Board of Trustees, Port of Mumbai & Anr.27;  

Intellectuals Forum, Tirupathi Vs. State of A.P. &  

Ors.28; Fomento Resorts And Hotels Limited & Anr.  

25  36 L ED 1018 : 146 U.S. 387 (1892) 26  (1997) 1 SCC 388 27  (2004) 3 SCC 214 28  (2006) 3 SCC 549

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Vs. Minguel Martins & Ors.29 and Reliance Natural  

Resources Limited Vs. Reliance Industries Limited30  

and held:

“85. As natural resources are public goods, the  doctrine of equality, which emerges from the  concepts of justice and fairness, must guide the State  in determining the actual mechanism for distribution  of natural resources. In this regard, the doctrine of  equality has two aspects: first, it regulates the rights  and obligations of the State vis-à-vis its people and  demands that the people be granted equitable access  to natural resources and/or its products and that they  are adequately compensated for the transfer of the  resource to the private domain; and second, it  regulates the rights and obligations of the State vis-à- vis private parties seeking to acquire/use the resource  and demands that the procedure adopted for  distribution is just, non-arbitrary and transparent and  that it does not discriminate between similarly placed  private parties.”

Referring to the decisions of this Court in Akhil Bhartiya  

Upbhokta Congress Vs. State of Madhya Pradesh & Ors.31  

and Sachidanand Pandey & Anr. Vs. State of West Bengal  

& Ors.32, the Bench ultimately concluded thus:

“89. In conclusion, we hold that the State is the legal  owner of the natural resources as a trustee of the  people and although it is empowered to distribute the  same, the process of distribution must be guided by  the constitutional principles including the doctrine of  equality and larger public good.”

29  (2009) 3 SCC 571 30  (2010) 7 SCC 1 31  (2011) 5 SCC 29 32  (1987) 2 SCC 295

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75. On a reading of the above paragraphs, it can be noticed  

that the doctrine of equality; larger public good, adoption  

of a transparent and fair method, opportunity of  

competition; and avoidance of any occasion to scuttle the  

claim of similarly situated applicants were emphasised  

upon.  While dealing with alienation of natural resources  

like spectrum, it was stated that it is the duty of the State  

to ensure that a non-discriminatory method is adopted for  

distribution and alienation which would necessarily result  

in the protection of national/public interest.

76. Paragraphs 85 and 89, while referring to the concept of  

‘public trust doctrine’, lay emphasis on the doctrine of  

equality, which has been segregated into two parts – one is  

the substantive part and the other is the regulatory part.  

In the regulatory facet, paragraph 85 states that the  

procedure adopted for distribution should be just and non-

arbitrary and must be guided by constitutional principles  

including the doctrine of equality and larger public good.  

Similarly, in paragraph 89 stress has been laid on  

transparency and fair opportunity of competition.  It is  

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further reiterated that the burden of the State is to ensure  

that a non-discriminatory method is adopted for  

distribution and alienation which would necessarily result  

in the protection of national and public interest.

77. Dealing with Questions No.(iii) and (iv) in paragraphs 94 to  

96 of the judgment, the Court opined as follows:

“94. There is a fundamental flaw in the first-come- first-served policy inasmuch as it involves an element  of pure chance or accident. In matters involving  award of contracts or grant of licence or permission to  use public property, the invocation of first-come-first- served policy has inherently dangerous implications.  Any person who has access to the power corridor at  the highest or the lowest level may be able to obtain  information from the government files or the files of  the agency/instrumentality of the State that a  particular public property or asset is likely to be  disposed of or a contract is likely to be awarded or a  licence or permission is likely to be given, he would  immediately make an application and would become  entitled to stand first in the queue at the cost of all  others who may have a better claim.

95. This Court has repeatedly held that wherever a  contract is to be awarded or a licence is to be given,  the public authority must adopt a transparent and fair  method for making selections so that all eligible  persons get a fair opportunity of competition. To put it  differently, the State and its agencies/  instrumentalities must always adopt a rational  method for disposal of public property and no attempt  should be made to scuttle the claim of worthy  applicants. When it comes to alienation of scarce  natural resources like spectrum, etc. it is the burden  of the State to ensure that a non-discriminatory  method is adopted for distribution and alienation,  

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which would necessarily result in protection of  national/public interest.

96. In our view, a duly publicised auction conducted  fairly and impartially is perhaps the best method for  discharging this burden and the methods like first- come-first-served when used for alienation of natural  resources/public property are likely to be misused by  unscrupulous people who are only interested in  garnering maximum financial benefit and have no  respect for the constitutional ethos and values. In  other words, while transferring or alienating the  natural resources, the State is duty-bound to adopt  the method of auction by giving wide publicity so that  all eligible persons can participate in the process.”

78. Our reading of these paragraphs suggests that the Court  

was not considering the case of auction in general, but  

specifically evaluating the validity of those methods  

adopted in the distribution of spectrum from September  

2007 to March 2008.  It is also pertinent to note that  

reference to auction is made in the subsequent paragraph  

(96) with the rider ‘perhaps’.  It has been observed that “a  

duly publicized auction conducted fairly and impartially is  

perhaps the best method for discharging this burden.” We  

are conscious that a judgment is not to be read as a  

statute, but at the same time, we cannot be oblivious to  

the fact that when it is argued with vehemence that the  

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judgment lays down auction as a constitutional principle,  

the word “perhaps”  gains significance. This suggests that  

the recommendation of auction for alienation of natural  

resources was never intended to be taken as an absolute  

or blanket statement applicable across all natural  

resources, but simply a conclusion made at first blush over  

the attractiveness of a method like auction in disposal of  

natural resources.  The choice of the word ‘perhaps’  

suggests that the learned Judges considered situations  

requiring a method other than auction as conceivable and  

desirable.

79. Further, the final conclusions summarized in paragraph  

102 of the judgment (SCC) make no mention about auction  

being the only permissible and intra vires method for  

disposal of natural resources; the findings are limited to  

the case of spectrum.  In case the Court had actually  

enunciated, as a proposition of law, that auction is the only  

permissible method or mode for alienation/allotment of  

natural resources, the same would have found a mention  

in the summary at the end of the judgment.

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80. Moreover, if the judgment is to be read as holding auction  

as the only permissible means of disposal of all natural  

resources, it would lead to the quashing of a large number  

of laws that prescribe methods other than auction, e.g., the  

MMRD Act.  While dealing with the merits of the Reference,  

at a later stage, we will discuss whether or not auction can  

be a constitutional mandate under Article 14 of the  

Constitution, but for the present, it would suffice to say  

that no court would ever implicitly, indirectly, or by  

inference, hold a range of laws as ultra vires the  

Constitution, without allowing every law to be tested on its  

merits.  One of the most profound tenets of  

constitutionalism is the presumption of constitutionality  

assigned to each legislation enacted.  We find that the 2G  

Case does not even consider a plethora of laws and  

judgments that prescribe methods, other than auction, for  

dispensation of natural resources; something that it would  

have done, in case, it intended to make an assertion as  

wide as applying auction to all natural resources.  

Therefore, we are convinced that the observations in Paras  

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94 to 96 could not apply beyond the specific case of  

spectrum, which according to the law declared in the 2G  

Case, is to be alienated only by auction and no other  

method.

81. Thus, having come to the conclusion that the 2G Case  

does not deal with modes of allocation for natural  

resources, other than spectrum, we shall now proceed to  

answer the first question of the Reference pertaining to  

other natural resources, as the question subsumes the  

essence of the entire reference, particularly the set of first  

five questions.   

82. The President seeks this Court’s opinion on the limited  

point of permissibility of methods other than auction for  

alienation of natural resources, other than spectrum.  The  

question also harbours several concepts, which were  

argued before us through the hearing of the Reference,  

that require to be answered in order to derive a  

comprehensive answer to the parent question.  Are some  

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methods ultra vires and others intra vires the Constitution  

of India, especially Article 14?  Can disposal through the  

method of auction be elevated to a Constitutional  

principle?  Is this Court entitled to direct the executive to  

adopt a certain method because it is the ‘best’ method?  If  

not, to what extent can the executive deviate from such  

‘best’ method?  An answer to these issues, in turn, will give  

an answer to the first question which, as noted above, will  

answer the Presidential Reference.

83. Before proceeding to answer these questions, we would  

like to dispose of a couple of minor objections.  The first  

pertained to the classification of resources made in the 2G  

Case.  Learned counsel appearing for CPIL argued that all  

that the judgment in the 2G Case has done is to carve out  

a special category of cases where public auction is the only  

legally sustainable method of alienation viz. natural  

resources that are scarce, valuable and are allotted to  

private entities for commercial exploitation.  The learned  

Attorney General, however, contested this claim and  

argued that no such proposition was laid down in the 2G  

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judgment.  He pointed out that the words “commercial  

exploitation”  were not even used anywhere in the  

judgment except in an extract from another judgment in a  

different context.  We agree that the judgment itself does  

not carve out any special case for scarce natural resources  

only meant for commercial exploitation.  However, we feel,  

despite that, in this Reference, CPIL is not barred from  

making a submission drawing a distinction between natural  

resources meant for commercial exploitation and those  

meant for other purposes.  This Court has the jurisdiction  

to classify the subject matter of a reference, if a genuine  

case for it exists.   

84. Mr. Shanti  Bhushan,  learned   Senior  Counsel, in  support  

of  his stand  that  the  first  question  of   the  Reference  

must  be  answered   in   a   way  so  as   to   allow  auction  

as  the  only  mode for  the disposal  of  natural  resources,  

submitted   that  a combined reading of Article 14, which  

dictates non- arbitrariness in State action and equal  

opportunity to those similarly placed; Article 39(b) which is  

a Directive Principle of State Policy dealing with  

distribution of natural resources for the common good of  

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the people; and the “trusteeship”  principle found in the  

Preamble which mandates that the State holds all natural  

resources in the capacity of a trustee, on behalf of the  

people, would make auction a constitutional mandate  

under Article 14 of the Constitution. It is imperative,  

therefore, that we evaluate each of these principles before  

coming to any conclusion on the constitutional verdict on  

auction.

85. In the 2G Case, two concepts namely, “public trust  

doctrine” and “trusteeship” have been adverted to, which  

were also relied upon by learned counsel for CPIL, in  

defence of the argument that the State holds natural  

resources in a fiduciary relationship with the people. As far  

as “trusteeship”  is concerned, there is no cavil that the  

State holds all natural resources as a trustee of the public  

and must deal with them in a manner that is consistent  

with the nature of such a trust. However, what was  

asserted on behalf of CPIL was that all natural resources  

fall within the domain of the “public trust doctrine”, and  

therefore, there is an obligation on the Government to  

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ensure that their transfer or alienation for commercial  

exploitation is in a fair and transparent manner and only in  

pursuit of public good. The learned Attorney General on  

the other hand, zealously urged that the subject matter of  

the doctrine and the nature of restrictions, it imposes, are  

of limited scope; that the applicability of the doctrine is  

restricted to certain common properties pertaining to the  

environment, like rivers, seashores, forest and air, meant  

for free and unimpeded use of the general public and the  

restrictions it imposes is in the term of a complete  

embargo on any alienation of such resources, for private  

ownership.  According to him, the extension of the public  

trust doctrine to all natural resources has led to a  

considerable confusion and needs to be clarified.  

86. The doctrine of public trust enunciated more thoroughly by  

the United States Supreme Court in Illinois (supra) was  

introduced to Indian environmental jurisprudence by this  

Court in M.C. Mehta (supra).  Speaking for the majority,  

Kuldip Singh, J.  observed as follows :   

“25. The Public Trust Doctrine primarily rests on the  

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principle that certain resources like air, sea, waters and  the forests have such a great importance to the people  as a whole that it would be wholly unjustified to make  them a subject of private ownership. The said resources  being a gift of nature, they should be made freely  available to everyone irrespective of the status in life.  The doctrine enjoins upon the Government to protect  the resources for the enjoyment of the general public  rather than to permit their use for private ownership or  commercial purposes. According to Professor Sax the  Public Trust Doctrine imposes the following restrictions  on governmental authority:

‘Three types of restrictions on governmental  authority are often thought to be imposed by  the public trust: first, the property subject to  the trust must not only be used for a public  purpose, but it must be held available for use  by the general public; second, the property  may not be sold, even for a fair cash  equivalent; and third the property must be  maintained for particular types of uses’.”

The learned Judge further observed:- “34. Our legal system — based on English common law  —  includes the public trust doctrine as part of its  jurisprudence. The State is the trustee of all natural  resources which are by nature meant for public use and  enjoyment. Public at large is the beneficiary of the sea- shore, running waters, airs, forests and ecologically  fragile lands. The State as a trustee is under a legal duty  to protect the natural resources. These resources meant  for public use cannot be converted into private  ownership.”

87. The judgment in Kamal Nath’s case (supra) was  

explained in Intellectuals Forum (supra).  Reiterating  

that the State is the trustee of all natural resources which  

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are by nature meant for public use and enjoyment, the  

Court observed thus:

“76. The Supreme Court of California, in National  Audubon Society Vs. Superior Court of Alpine  Country also known as Mono Lake case summed up  the substance of the doctrine. The Court said:

“Thus the public trust is more than an  affirmation of State power to use public  property for public purposes. It is an  affirmation of the duty of the State to protect  the people's common heritage of streams,  lakes, marshlands and tidelands, surrendering  the right only in those rare cases when the  abandonment of the right is consistent with  the purposes of the trust.”

This is an articulation of the doctrine from the angle of  the affirmative duties of the State with regard to public  trust. Formulated from a negatory angle, the doctrine  does not exactly prohibit the alienation of the property  held as a public trust. However, when the State holds a  resource that is freely available for the use of the public,  it provides for a high degree of judicial scrutiny on any  action of the Government, no matter how consistent  with the existing legislations, that attempts to restrict  such free use. To properly scrutinise such actions of the  Government, the courts must make a distinction  between the Government's general obligation to act for  the public benefit, and the special, more demanding  obligation which it may have as a trustee of certain  public resources…”  

It was thus, held that when the affirmative duties are set out  

from a nugatory angle, the doctrine does not exactly prohibit  

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the alienation of property held as a public trust, but mandates a  

high degree of judicial scrutiny.  

88. In Fomento (supra), the Court was concerned with the  

access of the public to a beach in Goa.  Holding that it was  

a public beach which could not be privatized or blocked  

denying traditional access, this Court reiterated the public  

trust doctrine as follows:

“52. The matter deserves to be considered from  another angle. The public trust doctrine which has been  invoked by Ms Indira Jaising in support of her argument  that the beach in question is a public beach and the  appellants cannot privatise the same by blocking/  obstructing traditional access available through Survey  No. 803 (new No. 246/2) is implicitly engrafted by the  State Government in Clause 4(ix) of the agreement.  That doctrine primarily rests on the principle that  certain resources like air, sea, waters and the forests  have such a great importance to the people as a whole  that it would be wholly unjustified to make them a  subject of private ownership. These resources are gift of  nature, therefore, they should be freely available to  everyone irrespective of one's status in life.”

89. In Reliance Natural Resources (supra), it has been  

observed that even though the doctrine of pubic trust has  

been applied in cases dealing with environmental  

jurisprudence, “it has broader application”.  Referring to  

Kamal Nath (supra), the Court held that it is the duty of  

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the Government to provide complete protection to the  

natural resources as a trustee of the people at large.  

90.  The public trust doctrine is a specific doctrine with a  

particular domain and has to be applied carefully. It has  

been seriously debated before us as to whether the  

doctrine can be applied beyond the realm of environmental  

protection. Richard J. Lazarus in his article, “Changing  

Conceptions of Property and Sovereignty in Natural  

Resources: Questioning the Public Trust Doctrine”,  

while expressing scepticism over the ‘liberation’  of the  

doctrine, makes the following observations:-

“The strength of the public trust doctrine necessarily  lies in its origins; navigable waters and submerged lands  are the focus of the doctrine, and the basic trust  interests in navigation, commerce, and fishing are the  object of its guarantee of public access.  Commentators  and judges alike have made efforts to “liberate”,  “expand”, and “modify”  the doctrine’s scope yet its  basic focus remains relatively unchanged.  Courts still  repeatedly return to the doctrine’s historical function to  determine its present role.  When the doctrine is  expanded, more often than not the expansions require  tortured constructions of the present rather than  repudiations of the doctrine’s past.”

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However, we feel that for the purpose of the present opinion, it  

is not necessary to delve deep into the issue as in Intellectuals  

Forum (supra), the main departure from the principle explained  

by Joseph. L. Sax in his Article “The Public Trust Doctrine in  

Natural Resource Law: Effective Judicial Intervention” is  

that public trust mandates a high degree of judicial scrutiny, an  

issue that we will anyway elaborately discuss while enunciating  

the mandate of Article 14 of the Constitution.

91. We would also like to briskly deal with a similar argument  

made by Mr. Shanti Bhushan. The learned senior counsel  

submitted that the repository of sovereignty in our  

framework is the people of this country since the opening  

words of the Constitution read “We The People of India…  

do hereby adopt, enact and give to ourselves this  

Constitution,” and therefore the government, as the agent  

of the Sovereign, the people, while alienating natural  

resources, must heed to judicial care and due process.  

Firstly, this Court has held in Raja Ram Pal Vs. Hon’ble  

Speaker, Lok Sabha & Ors.33 that the “Constitution is  

33  (2007) 3 SCC 184; Para 21

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the supreme lex in this country”  and “all organs of the  

State derive their authority, jurisdiction and powers from  

the Constitution and owe allegiance to it”.  Further, the  

notion that the Parliament is an agent of the people was  

squarely rebutted in In Re: Delhi Laws Act, 1912  

(supra), where it was observed that “the legislature as a  

body cannot be seen to be an agency of the electorate as a  

whole”  and “acts on its own authority or power which it  

derives from the Constitution”.  

92. In Municipal Corporation of Delhi Vs. Birla Cotton,  

Spinning and Weaving Mills, Delhi & Anr.34 this Court  

held that “the doctrine that it (the Parliament) is a  

delegate of the people coloured certain American decision  

does not arise here” and that in fact the “Parliament which  

by a concentration of all the powers of legislation derived  

from all the three Legislative Lists becomes the most  

competent and potent legislature it is possible to erect  

under our Constitution.”  We however, appreciate the  

concern of Mr. Shanti Bhushan that the lack of any such  

34  [1968] 3 SCR 251  

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power in the hands of the people must not be a sanction  

for recklessness during disposal of natural resources. The  

legislature and the Executive are answerable to the  

Constitution and it is there where the judiciary, the  

guardian of the Constitution, must find the contours to the  

powers of disposal of natural resources, especially Article  

14 and Article 39(b).     

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MANDATE     OF     ARTICLE     14:   

93. Article 14 runs as follows:

“14.  Equality before law. –  The State shall not  deny to any person equality before the law or the  equal protection of the laws within the territory of  India.”

94. The underlying object of Article 14 is to secure to all  

persons, citizens or non-citizens, the equality of status and  

opportunity referred to in the preamble to our Constitution.  

The language of Article 14 is couched in negative terms  

and is in form, an admonition addressed to the State. It  

does not directly purport to confer any right on any person  

as some of the other Articles, e.g., Article 19, do.  The right  

to equality before law is secured from all legislative and  

executive tyranny by way of discrimination since the  

language of Article 14 uses the word “State” which as per  

Article 12, includes the executive organ. [See: Basheshar  

Nath Vs. The Commissioner of Income Tax, Delhi &  

Rajasthan & Anr.35]. Besides, Article 14 is expressed in  35  1959 Supp (1) SCR 528- “Coming then to the language of the Article it must be noted,  

first and foremost that this Article is, in form, an admonition addressed to the State  and does not directly purport to confer any right on any person as some of the other  Articles, e.g., Article 19, do. The obligation thus imposed on the State, no doubt,  

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truncate its all-embracing scope and meaning, for to do  so would be to violate its activist magnitude. Equality is  a dynamic concept with many aspects and dimensions  and it cannot be “cribbed, cabined and confined” within  traditional and doctrinaire limits.”

His Lordship went on to explain the length and breadth of Article  

14 in the following lucid words:

“85…  From a positivistic point of view, equality is  antithetic to arbitrariness. In fact equality and  arbitrariness are sworn enemies; one belongs to the rule  of law in a republic while the other, to the whim and  caprice of an absolute monarch. Where an act is  arbitrary, it is implicit in it that it is unequal both  according to political logic and constitutional law and is  therefore violative of Article 14, and if it effects any  matter relating to public employment, it is also violative  of Article 16. Articles 14 and 16 strike at arbitrariness in  State action and ensure fairness and equality of  treatment. They require that State action must be based  on valid relevant principles applicable alike to all  similarly situate and it must not be guided by any  extraneous or irrelevant considerations because that  would be denial of equality. Where the operative reason  for State action, as distinguished from motive inducing  from the antechamber of the mind, is not legitimate and  relevant but is extraneous and outside the area of  permissible considerations, it would amount to mala fide  exercise of power and that is hit by Articles 14 and 16.  Mala fide exercise of power and arbitrariness are  different lethal radiations emanating from the same  vice: in fact the latter comprehends the former. Both are  inhibited by Articles 14 and 16.”

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97. Building upon his opinion delivered in Royappa’s case  

(supra), Bhagwati, J., held in Maneka Gandhi Vs. Union  

of India & Anr.39:

“The principle of reasonableness, which legally as well  as philosophically, is an essential element of equality or  non- arbitrariness pervades Article 14 like a brooding  omnipresence and the procedure contemplated by  Article 21 must answer the test of reasonableness in  order to be in conformity with Article 14. It must be  “right and just and fair”  and not arbitrary, fanciful or  oppressive.”

98. In Ajay Hasia & Ors. Vs. Khalid Mujib Sehravardi &  

Ors.40, this Court said that the ‘arbitrariness’ test was lying  

“latent and submerged” in the “simple but pregnant” form of  

Article 14 and explained the switch from the ‘classification’  

doctrine to the ‘arbitrariness’ doctrine in the following words:

“16…The doctrine of classification which is evolved by  the courts is not paraphrase of Article 14 nor is it the  objective and end of that article. It is merely a judicial  formula for determining whether the legislative or  executive action in question is arbitrary and therefore  constituting denial of equality. If the classification is not  reasonable and does not satisfy the two conditions  referred to above, the impugned legislative or executive  action would plainly be arbitrary and the guarantee of  equality under Article 14 would be breached. Wherever  therefore there is arbitrariness in State action whether it  be of the legislature or of the executive or of an  ‘authority’  under Article 12, Article 14 immediately  springs into action and strikes down such State action.  

39  (1978) 1 SCC 248 40  (1981) 1 SCC 722

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In fact, the concept of reasonableness and non- arbitrariness pervades the entire constitutional scheme  and is a golden thread which runs through the whole of  the fabric of the Constitution.”

99. Ramana Dayaram Shetty Vs. International Airport  

Authority of India & Ors.41  explained the limitations of  

Article 14 on the functioning of the Government as follows: -

“12…It must, therefore, be taken to be the law that  where the Government is dealing with the public,  whether by way of giving jobs or entering into contracts  or issuing quotas or licences or granting other forms of  largesse, the Government cannot act arbitrarily at its  sweet will and, like a private individual, deal with any  person it pleases, but its action must be in conformity  with standard or norms which is not arbitrary, irrational  or irrelevant. The power or discretion of the Government  in the matter of grant of largesse including award of  jobs, contracts, quotas, licences, etc. must be confined  and structured by rational, relevant and non- discriminatory standard or norm and if the Government  departs from such standard or norm in any particular  case or cases, the action of the Government would be  liable to be struck down, unless it can be shown by the  Government that the departure was not arbitrary, but  was based on some valid principle which in itself was  not irrational, unreasonable or discriminatory.”

100.Equality and arbitrariness were thus, declared “sworn  

enemies” and it was held that an arbitrary act would fall foul  

of the right to equality.  Non-arbitrariness was equated with  

the rule of law about which Jeffrey Jowell in his seminal  

article “The Rule of Law Today” said: - 41  (1979) 3 SCC 489 : AIR 1979 SC 1628

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“Rule of law principle primarily applies to the power of  implementation. It mainly represents a state of  procedural fairness. When the rule of law is ignored by  an official it may on occasion be enforced by courts.”

101.As is evident from the above, the expressions ‘arbitrariness’  

and ‘unreasonableness’ have been used interchangeably and  

in fact, one has been defined in terms of the other.  More  

recently, in Sharma Transport Vs. Government of A.P. &  

Ors.42, this Court has  observed thus:

“25…In order to be described as arbitrary, it must be  shown that it was not reasonable and manifestly  arbitrary. The expression “arbitrarily”  means: in an  unreasonable manner, as fixed or done capriciously or  at pleasure, without adequate determining principle, not  founded in the nature of things, non-rational, not done  or acting according to reason or judgment, depending  on the will alone.”

102.Further, even though the ‘classification’ doctrine was never  

overruled, it has found less favour with this Court as  

compared to the ‘arbitrariness’ doctrine.  In Om Kumar &  

Ors. Vs. Union of India43, this Court held thus:

“59. But, in E.P. Royappa v. State of T. N. Bhagwati, J  laid down another test for purposes of Article 14. It  was stated that if the administrative action was  

42  (2002) 2 SCC 188 43  (2001) 2 SCC 386

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“arbitrary”, it could be struck down under Article 14.  This principle is now uniformly followed in all courts  more rigorously than the one based on classification.  Arbitrary action by the administrator is described as  one that is irrational and not based on sound reason.  It is also described as one that is unreasonable.”

103.However, this Court has also alerted against the arbitrary  

use of the ‘arbitrariness’  doctrine. Typically, laws are  

struck down for violating Part III of the Constitution of  

India, legislative incompetence or excessive delegation.  

However, since Royappa’s case (supra), the doctrine has  

been loosely applied. This Court in State of A.P. & Ors.  

Vs. McDowell & Co. & Ors.44 stressed on the need for an  

objective and scientific analysis of arbitrariness, especially  

while striking down legislations. Justice Jeevan Reddy  

observed:

“43…The power of Parliament or for that matter, the  State Legislatures is restricted in two ways. A law made  by Parliament or the  legislature can be struck down by  courts on two grounds and two grounds alone, viz., (1)  lack of legislative competence and (2) violation of any of  the fundamental rights guaranteed in Part III of the  Constitution or of any other constitutional provision.  There is no third ground. We do not wish to enter into a  discussion of the concepts of procedural  unreasonableness and substantive unreasonableness —  concepts inspired by the decisions of United States  Supreme Court. Even in U.S.A., these concepts and in  

44  (1996) 3 SCC 709

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particular the concept of substantive due process have  proved to be of unending controversy, the latest  thinking tending towards a severe curtailment of this  ground (substantive due process). The main criticism  against the ground of substantive due process being  that it seeks to set up the courts as arbiters of the  wisdom of the legislature in enacting the particular  piece of legislation. It is enough for us to say that by  whatever name it is characterised, the ground of  invalidation must fall within the four corners of the two  grounds mentioned above. In other words, say, if an  enactment is challenged as violative of Article 14, it can  be struck down only if it is found that it is violative of  the equality clause/equal protection clause enshrined  therein.  Similarly, if an enactment is challenged as  violative of any of the fundamental rights guaranteed by  clauses (a) to (g) of Article 19(1), it can be struck down  only if it is found not saved by any of the clauses (s) to  (6) of Article 19 and so on.  No enactment can be struck  down by just saying that it is arbitrary** or  unreasonable.  Some or other constitutional infirmity  has to be found before invalidating an Act.  An  enactment cannot be struck down on the ground that  court thinks it unjustified.  Parliament and the  legislatures, composed as they are of the  representatives of the people, are supposed to know  and be aware of the needs of the people and what is  good and bad for them.  The court cannot sit in  judgment over their wisdom.  In this connection, it  should be remembered that even in the case of  administrative action, the scope of judicial review is  limited to three grounds, viz., (i) unreasonableness,  which can more appropriately be called irrationality, (ii)  illegality and (iii) procedural impropriety (see Council of  Civil Service Unions v. Minister for Civil Service which  decision has been accepted by this Court as well).

**An expression used widely and rather indiscriminately  —  an expression of inherently imprecise import.  The  extensive use of this expression in India reminds one of  what Frankfurter, J said in Hattie Mae Tiller v.  Atlantic Coast Line Railroad Co., 87 L ED 610 : 318  

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US 54 (1943).  “The phrase begins life as a literary  expression; its felicity leads to its lazy repetition and  repetition soon establishes it as a legal formula,  undiscriminatingly used to express different and  sometimes contradictory ideas”, said the learned  Judge.”

104.Therefore, ever since the Royappa era, the conception of  

‘arbitrariness’  has not undergone any significant change.  

Some decisions have commented on the doctrinal  

looseness of the arbitrariness test and tried keeping its  

folds within permissible boundaries.  For instance, cases  

where legislation or rules have been struck down as being  

arbitrary in the sense of being unreasonable [See: Air  

India Vs. Nergesh Meerza45 (SCC at pp. 372-373)] only  

on the basis of “arbitrariness”, as explained above, have  

been doubted in McDowell’s case (supra). But otherwise,  

the subject matter, content and tests for checking violation  

of Article 14 have remained, more or less, unaltered.

105.From a scrutiny of the trend of decisions it is clearly  

perceivable that the action of the State, whether it relates  

to distribution of largesse, grant of contracts or allotment  

45  (1981) 4 SCC 335

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108. Justice K. Subba Rao in his lectures compiled in a book  

titled “Some Constitutional Problems”, critically  

analyzing the trends of Indian constitutional development,  

stated as follows:

“If the Courts, instead of limiting the scope of the  articles by construction, exercise their jurisdiction in  appropriate cases, I have no doubt that the arbitrariness  of the authorities will be minimised. If these authorities  entrusted with the discretionary powers, realize that  their illegal orders infringing the rights of the people  would be quashed by the appropriate authority, they  would rarely pass orders in excess of their powers.  If  they knew that not only the form but the substance of  the orders would be scrutinized in open court, they  would try to keep within their bounds. The fear of  ventilation of grievance in public has always been an  effective deterrent. The apprehension that the High  Courts would be swamped with writs has no basis.”

109.Similar sentiments were expressed by Justice K. K. Mathew  

in series of lectures incorporated in the form of a book  

titled “Democracy, Equality and Freedom” in which it is  

stated that “the strength of judicial review lies in case to  

case adjudication.”  This is precisely why this Court in His  

Holiness Kesavananda Bharti Sripadagalvaru Vs.  

State of Kerala & Anr.46 quoting from an American  

decision, observed as follows:  

46  (1973) 4 SCC 225

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“1695…The reason why the expression "due process"  has never been defined is that it embodies a concept of  fairness which has to be decided with reference to the  facts and circumstances of each case and also  according to the mores for the time being in force in a  society to which the concept has to be applied. As  Justice Frankfurter said, "due process" is not a technical  conception with a fixed content unrelated to time, place  and circumstances [See Joint Anti-Fascist Refugee  Committee v. McGrath 341 U.S. 123]”.

110.Equality, therefore, cannot be limited to mean only  

auction, without testing it in every scenario. In The State  

of West Bengal Vs. Anwar Ali Sarkar47, this Court,  

quoting from Kotch Vs. Pilot Comm'rs48 , had held that  

“the constitutional command for a State to afford equal  

protection of the laws sets a goal not attainable by the  

invention and application of a precise formula.  This Court  

has never attempted that impossible task”. One cannot  

test the validity of a law with reference to the essential  

elements of ideal democracy, actually incorporated in the  

Constitution. (See: Indira Nehru Gandhi Vs.  Raj  

Narain49).  The Courts are not at liberty to declare a  

statute void, because in their opinion it is opposed to the  

spirit of the Constitution.  Courts cannot declare a  

47  1952 SCR 284 at pp. 297 48  330 U.S. 552 49  1975 (Supp) SCC 1

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limitation or constitutional requirement under the notion of  

having discovered some ideal norm.   Further, a  

constitutional principle must not be limited to a precise  

formula but ought to be an abstract principle applied to  

precise situations. The repercussion of holding auction as a  

constitutional mandate would be the voiding of every  

action that deviates from it, including social endeavours,  

welfare schemes and promotional policies, even though  

CPIL itself has argued against the same, and asked for  

making auction mandatory only in the alienation of scarce  

natural resources meant for private and commercial  

business ventures. It would be odd to derive auction as a  

constitutional principle only for a limited set of situations  

from the wide and generic declaration of Article 14. The  

strength of constitutional adjudication lies in case to case  

adjudication and therefore auction cannot be elevated to a  

constitutional mandate.

111.Finally, reading auction as a constitutional mandate would  

be impermissible because such an approach may distort  

another constitutional principle embodied in Article 39(b).  

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The said article enumerating certain principles of policy, to  

be followed by the State, reads as follows:  

“The State shall, in particular, direct its policy towards  securing –

(a) … … …

(b) that the ownership and control of the  material resources of the community are  so distributed as best to subserve the  common good;

… … …”

The disposal of natural resources is a facet of the use and  

distribution of such resources. Article 39(b) mandates that the  

ownership and control of natural resources should be so  

distributed so as to best subserve the common good. Article 37  

provides that the provisions of Part IV shall not be enforceable  

by any Court, but the principles laid down therein are  

nevertheless fundamental in the governance of the country and  

it shall be the duty of the State to apply these principles in  

making laws.

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112.Therefore, this Article, in a sense, is a restriction on  

‘distribution’ built into the Constitution. But the restriction  

is imposed on the object and not the means. The  

overarching and underlying principle governing  

‘distribution’  is furtherance of common good. But for the  

achievement of that objective, the Constitution uses the  

generic word ‘distribution’. Distribution has broad contours  

and cannot be limited to meaning only one method i.e.  

auction. It envisages all such methods available for  

distribution/allocation of natural resources which ultimately  

subserve the “common good”.  

113. In State of Tamil Nadu & Ors. Vs. L. Abu Kavur Bai &  

Ors.50, this Court explained the broad-based concept of  

‘distribution’ as follows:

“89. …The word ‘distribution’ used in Article 39(b) must  be broadly construed so that a court may give full and  comprehensive effect to the statutory intent contained  in Article 39 (b). A narrow construction of the word  ‘distribution’  might defeat or frustrate the very object  which the Article seeks to subserve…”  

50  (1984) 1 SCC 515

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114.After noting definitions of ‘distribution’  from different  

dictionaries, this Court held:

“92.  It is obvious, therefore, that in view of the vast  range of transactions contemplated by the word  ‘distribution’ as mentioned in the dictionaries referred  to above, it will not be correct to construe the word  ‘distribution’  in a purely literal sense so as to mean  only division of a particular kind or to particular  persons.  The words, apportionment, allotment,  allocation, classification, clearly fall within the broad  sweep of the word ‘distribution’.  So construed, the  word ‘distribution’ as used in Article 39(b) will include  various facets, aspects, methods and terminology of a  broad-based concept of distribution…”

115. It can thus, be seen from the afore-quoted paragraphs that  

the term “distribute” undoubtedly, has wide amplitude and  

encompasses all manners and methods of distribution,  

which would include classes, industries, regions, private  

and public sections, etc.  Having regard to the basic nature  

of Article 39(b), a narrower concept of equality under  

Article 14 than that discussed above, may frustrate the  

broader concept of distribution, as conceived in Article  

39(b).  There cannot, therefore, be a cavil that “common  

good’ and “larger public interests” have to be regarded as  

constitutional reality deserving actualization.

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116.Learned counsel for CPIL argued that revenue  

maximization during the sale or alienation of a natural  

resource for commercial exploitation is the only way of  

achieving public good since the revenue collected can be  

channelized to welfare policies and controlling the  

burgeoning deficit.  According to the learned counsel, since  

the best way to maximize revenue is through the route of  

auction, it becomes a constitutional principle even under  

Article 39(b). However, we are not persuaded to hold so.  

Auctions may be the best way of maximizing revenue but  

revenue maximization may not always be the best way 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 Article 39(b).   

117. In The State of Karnataka and Anr. Vs. Shri  

Ranganatha Reddy and Anr.51, Justice Krishna Iyer  

51  (1977) 4 SCC 471

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this Court on the facts of the case. Even in that case, this  

Court did not evolve economic criteria of its own to achieve  

the goal of “common good” in Article 39(b), which is part  

of the Directive Principles.  

119.The norm of “common good”  has to be understood and  

appreciated in a holistic manner. It is obvious that the  

manner in which the common good is best subserved is not  

a matter that can be measured by any constitutional  

yardstick - it would depend on the economic and political  

philosophy of the government.  Revenue maximization is  

not the only way in which the common good can be  

subserved. Where revenue maximization 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.   

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120.Therefore, in conclusion, the submission that the mandate  

of Article 14 is that any disposal of a natural resource for  

commercial use must be for revenue maximization, and  

thus by auction, is based neither on law nor on logic. There  

is no constitutional imperative in the matter of economic  

policies- Article 14 does not pre-define any economic policy  

as a constitutional mandate. Even the mandate of 39(b)  

imposes no restrictions on the means adopted to subserve  

the public good and uses the broad term ‘distribution’,  

suggesting that the methodology of distribution is not  

fixed. 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.  

LEGITIMATE     DEVIATIONS     FROM     AUCTION      

121.As a result, this Court has, on a number of occasions,  

delivered judgments directing means for disposal of  

natural resources other than auction for different  

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resources in different circumstances. It would be profitable  

to refer to a few cases and appreciate the reasons this  

Court has adopted for deviating from the method of  

auction.

122.  In M/s Kasturi Lal Lakshmi Reddy Vs. State of  

Jammu & Kashmir & Anr.53, while comparing the  

efficacy of auction in promoting a domestic industry, P.N.  

Bhagwati, J. observed: -

“22. …If the State were giving tapping contract  simpliciter there can be no doubt that the State would  have to auction or invite tenders for securing the  highest price, subject, of course, to any other relevant  overriding considerations of public weal or interest, but  in a case like this where the State is allocating  resources such as water, power, raw materials etc. for  the purpose of encouraging setting up of industries  within the State, we do not think the State is bound to  advertise and tell the people that it wants a particular  industry to be set up within the State and invite those  interested to come up with proposals for the purpose.  The State may choose to do so, if it thinks fit and in a  given situation, it may even turn out to be  advantageous for the State to do so, but if any private  party comes before the State and offers to set up an  industry, the State would not be committing breach of  any constitutional or legal obligation if it negotiates  with such party and agrees to provide resources and  other facilities for the purpose of setting up the  industry.  The State is not obliged to tell such party:  “Please wait I will first advertise, wee whether any  

53  (1980) 4 SCC 1

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other offers are forthcoming and then after considering  all offers, decide whether I should let you set up the  industry”...The State must be free in such a case to  negotiate with a private entrepreneur with a view to  inducing him to set up an industry within the State and  if the State enters into a contract with such  entrepreneur for providing resources and other  facilities for setting up an industry, the contract cannot  be assailed as invalid so long as the State has acted  bona fide, reasonably and in public interest. If the  terms and conditions of the contract or the  surrounding circumstances show that the State has  acted mala fide or out of improper or corrupt motive or  in order to promote the private interests of someone at  the cost of the State, the court will undoubtedly  interfere and strike down State action as arbitrary,  unreasonable or contrary to public interest. But so long  as the State action is bona fide and reasonable, the  court will not interfere merely on the ground that no  advertisement was given or publicity made or tenders  invited.”

123. In Sachidanand Pandey (supra) after noticing Kasturi  

Lal’s case (supra), it was concluded as under:  

“40. On a consideration of the relevant cases cited  at the Bar the following propositions may be taken  as well established: State-owned or public-owned  property is not to be dealt with at the absolute  discretion of the executive. Certain precepts and  principles have to be observed. Public interest is  the paramount consideration. One of the methods  of securing the public interest, when it is  considered necessary to dispose of a property, is to  sell the property by public auction or by inviting  tenders. Though that is the ordinary rule, it is not  an invariable rule. There may be situations where  there are compelling reasons necessitating  

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departure from the rule but then the reasons for  the departure must be rational and should not be  suggestive of discrimination. Appearance of public  justice is as important as doing justice. Nothing  should be done which gives an appearance of bias,  jobbery or nepotism.”

124. In Haji T.M. Hassan Rawther Vs. Kerala Financial  

Corpn.54, after an exhaustive review of the law including  

the decisions in Kasturi Lal (supra) and Sachidanand  

Pandey (supra), it was held that public disposal of State  

owned properties is not the only rule.  It was, inter-alia,  

observed that:

“14. The public property owned by the State or by any  instrumentality of the State should be generally sold by  public auction or by inviting tenders. This Court has  been insisting upon that rule, not only to get the highest  price for the property but also to ensure fairness in the  activities of the State and public authorities. They  should undoubtedly act fairly. Their actions should be  legitimate. Their dealings should be aboveboard. Their  transactions should be without aversion or affection.  Nothing should be suggestive of discrimination. Nothing  should be done by them which gives an impression of  bias, favouritism or nepotism. Ordinarily these factors  would be absent if the matter is brought to public  auction or sale by tenders. That is why the court  repeatedly stated and reiterated that the State-owned  properties are required to be disposed of publicly. But  that is not the only rule. As O. Chinnappa Reddy, J.  observed “that though that is the ordinary rule, it is not  an invariable rule”. There may be situations  necessitating departure from the rule, but then such  instances must be justified by compulsions and not by  

54  1988) 1 SCC 166

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compromise. It must be justified by compelling reasons  and not by just convenience.”

Here, the Court added to the previous decisions and said that a  

blithe deviation from public disposal of resources would not be  

tolerable; such a deviation must be justified by compelling  

reasons and not by just convenience.  

125. In M.P. Oil Extraction and Anr. Vs. State of M.P. &  

Ors.55, this Court held as follows:

“45. Although to ensure fair play and transparency in  State action, distribution of largesse by inviting open  tenders or by public auction is desirable, it cannot be  held that in no case distribution of such largesse by  negotiation is permissible. In the instant case, as a  policy decision protective measure by entering into  agreements with selected industrial units for assured  supply of sal seeds at concessional rate has been taken  by the Government. The rate of royalty has also been  fixed on some accepted principle of pricing formula as  will be indicated hereafter. Hence, distribution or  allotment of sal seeds at the determined royalty to the  respondents and other units covered by the agreements  cannot be assailed. It is to be appreciated that in this  case, distribution by public auction or by open tender  may not achieve the purpose of the policy of protective  measure by way of supply of sal seeds at concessional  rate of royalty to the industrial units covered by the  agreements on being selected on valid and objective  considerations.”

55  (1997) 7 SCC 592

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126. In Netai Bag & Ors. Vs. State of W.B. & Ors.56, this  

Court observed that non- floating of tenders or not holding  

of public auction would, not in all cases, be deemed to be  

the result of the exercise of the executive power in an  

arbitrary manner. It was     stated:

“19. …There cannot be any dispute with the proposition  that generally when any State land is intended to be  transferred or the State largesse decided to be  conferred, resort should be had to public auction or  transfer by way of inviting tenders from the people. That  would be a sure method of guaranteeing compliance  with the mandate of Article 14 of the Constitution. Non- floating of tenders or not holding of public auction would  not in all cases be deemed to be the result of the  exercise of the executive power in an arbitrary manner.  Making an exception to the general rule could be  justified by the State executive, if challenged in  appropriate proceedings. The constitutional courts  cannot be expected to presume the alleged  irregularities, illegalities or unconstitutionality nor the  courts can substitute their opinion for the bona fide  opinion of the State executive. The courts are not  concerned with the ultimate decision but only with the  fairness of the decision-making process.

This Court once again pointed out that there can be exceptions  

from auction; the ultimate test is only that of fairness of the  

decision making process and compliance with Article 14 of the  

Constitution.  

56  (2000) 8 SCC 262

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127. In M & T Consultants, Secunderabad Vs. S.Y.  

Nawab57, this Court again reiterated that non- floating of  

tenders does not always lead to the conclusion that the  

exercise of the power is arbitrary:

“17. A careful and dispassionate assessment and  consideration of the materials placed on record does  not leave any reasonable impression, on the peculiar  facts and circumstances of this case, that anything  obnoxious which requires either public criticism or  condemnation by courts of law had taken place. It is by  now well settled that non-floating of tenders or  absence of public auction or invitation alone is no  sufficient reason to castigate the move or an action of  a public authority as either arbitrary or unreasonable  or amounting to mala fide or improper exercise or  improper abuse of power by the authority concerned.  Courts have always leaned in favour of sufficient  latitude being left with the authorities to adopt their  own techniques of management of projects with  concomitant economic expediencies depending upon  the exigencies of a situation guided by appropriate  financial policy in the best interests of the authority  motivated by public interest as well in undertaking  such ventures.”

128. In Villianur Iyarkkai Padukappu Maiyam Vs. Union of  

India & Ors.58, a three Judge Bench of this Court was  

concerned with the development of the Port of Pondicherry  

where a contractor had been selected without floating a  

tender or holding public auction. It was held as under:

57  (2003) 8 SCC 100 58  (2009) 7 SCC 561   

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“164. The plea raised by the learned counsel for the  appellants that the Government of Pondicherry was  arbitrary and unreasonable in switching the whole  public tender process into a system of personal  selection and, therefore, the appeals should be  accepted, is devoid of merits. It is well settled that  non-floating of tenders or not holding of public  auction would not in all cases be deemed to be the  result of the exercise of the executive power in an  arbitrary manner.

171. In a case like this where the State is allocating  resources such as water, power, raw materials, etc.  for the purpose of encouraging development of the  port, this Court does not think that the State is bound  to advertise and tell the people that it wants  development of the port in a particular manner and  invite those interested to come up with proposals for  the purpose. The State may choose to do so if it  thinks fit and in a given situation it may turn out to be  advantageous for the State to do so, but if any  private party comes before the State and offers to  develop the port, the State would not be committing  breach of any constitutional obligation if it negotiates  with such a party and agrees to provide resources  and other facilities for the purpose of development of  the port.”

129.Hence, 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 judiciary tests such deviations on the limited scope of  

arbitrariness and fairness under Article 14 and its role is  

limited to that extent. Essentially whenever the object of  

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policy is anything but revenue maximization, the Executive  

is seen to adopt methods other than auction.  

130.  A fortiori, besides legal logic, mandatory 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. A concern would risk undertaking such  

exploration and incur heavy costs only if it was assured  

utilization of the resource discovered; a prudent business  

venture, would not like to incur the high costs involved in  

exploration activities and then compete for that resource  

in an open auction. The logic is similar to that applied in  

patents. Firms are given incentives to invest in research  

and development with the promise of exclusive access to  

the market for the sale of that invention. Such an approach  

is economically and legally sound and sometimes  

necessary to spur research and development. Similarly,  

bundling exploration and exploitation contracts may be  

necessary to spur growth in a specific industry.  

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131.Similar deviation from auction cannot be ruled out when  

the object of a State policy is to promote domestic  

development of an industry, like in Kasturi Lal’s case,  

discussed above. However, these examples are purely  

illustrative in order to demonstrate that auction cannot be  

the sole criteria for alienation of all natural resources.  

POTENTIAL     OF     ABUSE   

132. It was also argued that even if the method of auction is not  

a mandate under Article 14, it must be the only  

permissible method, due to the susceptibility of other  

methods to abuse. This argument, in our view, is contrary  

to an established position of law on the subject cemented  

through a catena of decisions.  

133. In R.K. Garg Vs. Union of India & Ors.59, Justice P. N.  

Bhagwati, speaking for a Constitution Bench of five learned  

Judges, held:  

“8.…The Court must always remember that “legislation  is directed to practical problems, that the economic  mechanism is highly sensitive and complex, that many  

59  (1981) 4 SCC 675

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problems are singular and contingent, that laws are not  abstract propositions and do not relate to abstract units  and are not to be measured by abstract symmetry”;  “that exact wisdom and nice adaption of remedy are not  always possible”  and that “judgment is largely a  prophecy based on meager and uninterpreted  experience”. Every legislation particularly in economic  matters is essentially empiric and it is based on  experimentation or what one may call trial and error  method and therefore it cannot provide for all possible  situations or anticipate all possible abuses. There may  be crudities and inequities in complicated experimental  economic legislation but on that account alone it cannot  be struck down as invalid. The courts cannot, as pointed  out by the United States Supreme Court in Secretary  of Agriculture v. Central Reig Refining Company60  be converted into tribunals for relief from such crudities  and inequities. There may even be possibilities of abuse,  but that too cannot of itself be a ground for invalidating  the legislation, because it is not possible for any  legislature to anticipate as if by some divine prescience,  distortions and abuses of its legislation which may be  made by those subject to its provisions and to provide  against such distortions and abuses. Indeed, howsoever  great may be the care bestowed on its framing, it is  difficult to conceive of a legislation which is not capable  of being abused by perverted human ingenuity. The  Court must therefore adjudge the constitutionality of  such legislation by the generality of its provisions and  not by its crudities or inequities or by the possibilities of  abuse of any of its provisions. If any crudities, inequities  or possibilities of abuse come to light, the legislature  can always step in and enact suitable amendatory  legislation. That is the essence of pragmatic approach  which must guide and inspire the legislature in dealing  with complex economic issues.”

60  94 L Ed 381 : 338 US 604 (1950)

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134.Then again, in D. K. Trivedi & Sons & Ors. Vs. State of  

Gujarat & Ors.61, while upholding the constitutional  

validity of Section 15(1) of the MMRD Act, this Court  

explained the principle in the following words:

“50. Where a statute confers discretionary powers  upon the executive or an administrative authority, the  validity or constitutionality of such power cannot be  judged on the assumption that the executive or such  authority will act in an arbitrary manner in the  exercise of the discretion conferred upon it. If the  executive or the administrative authority acts in an  arbitrary manner, its action would be bad in law and  liable to be struck down by the courts but the  possibility of abuse of power or arbitrary exercise of  power cannot invalidate the statute conferring the  power or the power which has been conferred by it.”

135.Therefore, a potential for abuse cannot be the basis for  

striking down a method as ultra vires the Constitution. It is  

the actual abuse itself that must be brought before the  

Court for being tested on the anvil of constitutional  

provisions. In fact, 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 cartelization, “winners curse” (the phenomenon by  61  (1986) Supp SCC 20

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which a bidder bids a higher, unrealistic and unexecutable  

price just to surpass the competition; or where a bidder, in  

case of multiple auctions, bids for all the resources and  

ends up winning licenses for exploitation of more  

resources than he can pragmatically execute), 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 maximization 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.

JUDICIAL     REVIEW     OF     POLICY     DECISIONS   

136.The learned Attorney General also argued that dictating a  

method of distribution for natural resources violates the  

age old established principle of non-interference by the  

judiciary in policy matters. Even though the contours of the  

power of judicial review of policy decisions has become a  

trite subject, as the Courts have repeatedly delivered  

opinions on it, we wish to reiterate some of the principles  

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in brief, especially with regard to economic policy choices  

and pricing.  

137.One of the earliest pronouncements on the subject came  

from this Court in Rustom Cavasjee Cooper Vs.  Union  

of India62 (commonly known as “Bank Nationalization  

Case”)  wherein this Court held that it is not the forum  

where conflicting policy claims may be debated; it is only  

required to adjudicate the legality of a measure which has  

little to do with relative merits of different political and  

economic theories. The Court  observed:

“63. This Court is not the forum in which these  conflicting claims may be debated. Whether there is a  genuine need for banking facility in the rural sector,  whether certain classes of the community are deprived  of the benefit of the resources of the banking industry,  whether administration by the Government of the  commercial banking sector will not prove beneficial to  the community and will lead to rigidity in the  administration, whether the Government administration  will eschew the profit-motive, and even if it be  eschewed, there will accrue substantial benefits to the  public, whether an undue accent on banking as a means  of social regeneration, especially in the backward areas,  is a doctrinaire approach to a rational order of priorities  for attaining the national objectives enshrined in our  Constitution, and whether the policy followed by the  

62  (1970) 1 SCC 248

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Government in office or the policy propounded by its  opponents may reasonably attain the national  objectives are matters which have little relevance in  determining the legality of the measure. It is again not  for this Court to consider the relative merits of the  different political theories or economic policies. The  Parliament has under Entry 45, List I the power to  legislate in respect of banking and other commercial  activities of the named banks necessarily incidental  thereto: it has the power to legislate for acquiring the  undertaking of the named banks under Entry 42, List III.  Whether by the exercise of the power vested in the  Reserve Bank under the pre-existing laws, results could  be achieved which it is the object of the Act to achieve,  is, in our judgment, not relevant in considering whether  the Act amounts to abuse of legislative power. This  Court has the power to strike down a law on the ground  of want of authority, but the Court will not sit in appeal  over the policy of the Parliament in enacting a law. The  Court cannot find fault with the Act merely on the  ground that it is inadvisable to take over the  undertaking of banks which, it is said by the petitioner,  by thrift and efficient management had set up an  impressive and efficient business organization serving  large sectors of industry.”

138. In R.K. Garg (supra), this Court even observed that  

greater judicial deference must be shown towards a law  

relating to economic activities due to the complexity of  

economic problems and their fulfillment through a  

methodology of trial and error. As noted above, it was also  

clarified that the fact that an economic legislation may be  

troubled by crudities, inequities, uncertainties or the  

possibility of abuse cannot be the basis for striking it  

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down. The following observations which refer to a couple  

of American Supreme Court decisions are a limpid  

enunciation on the subject :

“8. Another rule of equal importance is that laws  relating to economic activities should be viewed with  greater latitude than laws touching civil rights such as  freedom of speech, religion etc. It has been said by no  less a person than Holmes, J., that the legislature should  be allowed some play in the joints, because it has to  deal with complex problems which do not admit of  solution through any doctrinaire or strait-jacket formula  and this is particularly true in case of legislation dealing  with economic matters, where, having regard to the  nature of the problems required to be dealt with,  greater play in the joints has to be allowed to the  legislature. The court should feel more inclined to give  judicial deference to legislative judgment in the field of  economic regulation than in other areas where  fundamental human rights are involved. Nowhere has  this admonition been more felicitously expressed than in  Morey v. Doud63 where Frankfurter, J., said in his  inimitable style:

‘In the utilities, tax and economic regulation  cases, there are good reasons for judicial self- restraint if not judicial deference to legislative  judgment. The legislature after all has the  affirmative responsibility. The courts have  only the power to destroy, not to reconstruct.  When these are added to the complexity of  economic regulation, the uncertainty, the  liability to error, the bewildering conflict of the  experts, and the number of times the judges  have been overruled by events —  self- limitation can be seen to be the path to  judicial wisdom and institutional prestige and  stability’...”

63  354 US 457

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139. In Premium Granites & Anr. Vs. State of T.N. & Ors.64  

this Court clarified that it is the validity of a  law and not its  

efficacy that can be challenged:

“54. It is not the domain of the court to embark upon  unchartered ocean of public policy in an exercise to  consider as to whether a particular public policy is wise  or a better public policy can be evolved. Such exercise  must be left to the discretion of the executive and  legislative authorities as the case may be. The court is  called upon to consider the validity of a public policy  only when a challenge is made that such policy decision  infringes fundamental rights guaranteed by the  Constitution of India or any other statutory right...”

140. In Delhi Science Forum & Ors. Vs. Union of India &  

Anr.65 a Bench of three learned Judges of this Court, while  

rejecting a claim against the opening up of the telecom  

sector reiterated that the forum for debate and discourse  

over the merits and demerits of a policy is the Parliament.  

It restated that the services of this Court are not sought till  

the legality of the policy is disputed, and further, that no  

direction can be given or be expected from the courts,  

unless while implementing such policies, there is violation  

64  (1994) 2 SCC 691 65  (1996) 2 SCC 405

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or infringement of any of the constitutional or statutory  

provisions. It held thus:

“7. What has been said in respect of legislations is  applicable even in respect of policies which have been  adopted by Parliament. They cannot be tested in Court  of Law. The courts cannot express their opinion as to  whether at a particular juncture or under a particular  situation prevailing in the country any such national  policy should have been adopted or not. There may be  views and views, opinions and opinions which may be  shared and believed by citizens of the country including  the representatives of the people in Parliament. But that  has to be sorted out in Parliament which has to approve  such policies…”   

141. In BALCO Employees’  Union (Regd.) Vs. Union of  

India  & Ors.66,  this Court further pointed out that the  

Court ought to stay away from judicial review of efficacy of  

policy matters, not only because the same is beyond its  

jurisdiction, but also because it lacks the necessary  

expertise required for such a task. Affirming the previous  

views of this Court, the Court observed that while dealing  

with economic legislations, the Courts, while not  

jettisoning its jurisdiction to curb arbitrary action or  

unconstitutional legislation, should interfere only in those  

cases where the view reflected in the legislation is not  

66  (2002) 2 SCC 333

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possible to be taken at all. The Court went on to  

emphasize that unless the economic decision, based on  

economic expediencies, is demonstrated to be so violative  

of constitutional or legal limits on power or so abhorrent to  

reason, that the courts would decline to interfere.  

142. In BALCO (supra), the Court took notice of the judgment  

in Peerless General Finance and Investment Co. Ltd.  

& Anr. Vs. Reserve Bank of India67 and observed that  

some matters like price fixation are based on such  

uncertainties and dynamics that even experts face  

difficulty in making correct projections, making it all the  

more necessary for this Court to exercise non-  

interference:

“31. The function of the Court is to see that lawful  authority is not abused but not to appropriate to itself  the task entrusted to that authority. It is well settled  that a public body invested with statutory powers must  take care not to exceed or abuse its power. It must keep  within the limits of the authority committed to it. It must  act in good faith and it must act reasonably. Courts are  not to interfere with economic policy which is the  function of experts. It is not the function of the courts to  sit in judgment over matters of economic policy and it  must necessarily be left to the expert bodies. In such  matters even experts can seriously and doubtlessly  differ. Courts cannot be expected to decide them  

67  (1992) 2 SCC 343

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without even the aid of experts.” 143. In an earlier case in M/s Prag Ice & Oil Mills & Anr. Vs.  

Union of India68, this Court had observed as under: (SCC  

p. 478, Para 24)

“We do not think that it is the function of this Court or of  any court to sit in judgment over such matters of  economic policy as must necessarily be left to the  government of the day to decide. Many of them, as a  measure of price fixation must necessarily be, are  matters of prediction of ultimate results on which even  experts can seriously err and doubtlessly by differ.  Courts can certainly not be expected to decide them  without even the aid of experts.”

144. In State of Madhya Pradesh Vs. Narmada Bachao  

Andolan & Anr.69, this Court said that the judiciary cannot  

engage in an exercise of comparative analysis over the  

fairness, logical or scientific basis, or wisdom of a policy. It  

held that the Court cannot strike down a policy decision  

taken by the Government merely because it feels that  

another decision would have been fairer, or more scientific  

or logical, or wiser. The wisdom and advisability of the  

policies are ordinarily not amenable to judicial review  

unless the policies are contrary to statutory or  

68  [1978] 3 SCC 459 69  (2011) 7 SCC 639

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constitutional provisions or arbitrary or irrational or an  

abuse of power.

145.Mr. Subramanian Swamy also brought to our notice a  

Report on Allocation of Natural Resources, prepared by a  

Committee, chaired by Mr. Ashok Chawla (hereinafter  

referred to as the “Chawla Committee Report”), which has  

produced a copious conceptual framework for the  

Government of India on the allocation and pricing of scarce  

natural resources viz. coal, minerals, petroleum, natural  

gas, spectrum, forests, land and water.  He averred to  

observations of the report in favour of auction as a means  

of disposal.  However, since the opinion rendered in the  

Chawla Committee Report is pending acceptance by the  

Government, it would be inappropriate for us to place  

judicial reliance on it.  Besides, the Report conducts an  

economic, and not legal, analysis of the means of disposal  

of natural resources.  The purpose of this Reference would  

be best served if this Court gave a constitutional answer  

rather than economic one.

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146.To summarize in the context of the present Reference, it  

needs to be emphasized that this Court cannot conduct a  

comparative study of the various methods of distribution  

of natural resources and suggest the most efficacious  

mode, if there is one universal efficacious method in the  

first place. 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. As has been  

repeatedly said, it cannot, and shall not, be the endeavour  

of this Court to evaluate the efficacy of auction vis-à-vis  

other methods of disposal of natural resources. The Court  

cannot mandate one method to be followed in all facts and  

circumstances. Therefore, auction, an economic choice of  

disposal of natural resources, is not a constitutional  

mandate. We may, however, hasten to add that the Court  

can test the legality and constitutionality of these  

methods. When questioned, the Courts are entitled to  

analyse the legal validity of different means of distribution  

and give a constitutional answer as to which methods are  

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ultra vires and intra vires the provisions of the  

Constitution.  Nevertheless, it cannot and will not compare  

which policy is fairer than the other, but, if a policy or law  

is patently unfair to the extent that it falls foul of the  

fairness requirement of Article 14 of the Constitution, the  

Court would not hesitate in striking it down.  

147.Finally, market price, in economics, is an index of the value  

that a market prescribes to a good. However, this valuation  

is a function of several dynamic variables; it is a science  

and not a law. 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.

148. 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  

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therefore, every method other than auction cannot be  

struck down as ultra-vires the constitutional mandate.  

149.Regard being had to the aforesaid precepts, we have  

opined that auction as a mode cannot be conferred the  

status of a constitutional principle.  Alienation of natural  

resources is a policy decision, and the means adopted for  

the same are thus, executive prerogatives.  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.  Hence, rather than prescribing or  

proscribing a method, we believe, a judicial scrutiny of  

methods of disposal of natural resources should depend on  

the facts and circumstances of each case, in consonance  

with the principles which we have culled out above.  Failing  

which, the Court, in exercise of power of judicial review,  

shall term the executive action as arbitrary, unfair,  

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unreasonable and capricious due to its antimony with  

Article 14 of the Constitution.

150. In conclusion, our answer to the first set of five questions is  

that auctions are not the only permissible method for  

disposal of all natural resources across all sectors and in all  

circumstances.  

151.As regards the remaining questions, we feel that answer to  

these questions would have a direct bearing on the mode  

of alienation of Spectrum and therefore, in light of the  

statement by the learned Attorney General that the  

Government is not questioning the correctness of  

judgment in the 2G Case, we respectfully decline to  

answer these questions.  The Presidential Reference is  

answered accordingly.   

152.This opinion shall be transmitted to the President in  

accordance with the procedure prescribed in Part V of the  

Supreme Court Rules, 1966.

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……………………………………...              (S.H. KAPADIA, CJI)

……………………………………...   (D.K. JAIN, J.)

……………………………………...              (DIPAK MISRA, J.)

……………………………………...   (RANJAN GOGOI, J.)

NEW DELHI; SEPTEMBER 27, 2012. ARS/RS

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IN THE SUPREME COURT OF INDIA

ADVISORY JURISDICTION

SPECIAL     REFERENCE     NO.1     OF     2012   

IN     THE     MATTER     OF  :

Special Reference under Article 143(1)  

Of the Constitution of India

O     P     I     N     I     O     N   

JAGDISH     SINGH     KHEHAR,     J.   

1. I have had the privilege of perusing the opinion  

rendered by my esteemed brother, D.K. Jain, J.  Every  

bit of the opinion (which shall hereinafter be referred  

to by me, as the “main opinion”) is based on settled  

propositions of law declared by this Court.  There can,  

therefore, be no question of any disagreement  

therewith.  I fully endorse the opinion expressed  

therein.

2. The first question posed in the Presidential  

reference, is in fact the reason, for my having to  

record, some other nuances on the subject whereof  

advice has been sought.  The first question in the  

Presidential reference requires the Supreme Court to  

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tender advice on, “Whether the only permissible method  

for disposal of all natural resources across all  

sectors and in all circumstances, is by the conduct of  

auctions?”.  It is of utmost importance to understand,  

the tenor of the first question in the Presidential  

reference.  Take for instance a hypothetical situation  

where, the legality of 100 instances of disposal of  

different types of natural resources is taken up for  

consideration.  If the first question is taken in its  

literal sense, as to whether the method of disposal of  

all natural resources in all circumstances is by  

auction alone, then, even if 99 out of the aforesaid  

100 different natural resources are such, which can  

only be disposed of by way of auction, the answer to  

the first question would still be in the negative.  

This answer in the negative would give the erroneous  

impression, that it is not necessary to dispose of  

natural resources by way of auction.  Surely, the  

Presidential reference has not been made, to seek such  

an innocuous advice. The instant reference has been  

made despite the Central Government being alive to the  

fact, that there are natural resources which can only  

be disposed of by way of auction.  A mining lease for  

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coal under Section 11A of the Mines and Minerals  

(Development and Regulation) Act, 1957 can be granted,  

only by way of selection through auction by competitive  

bidding.  Furthermore, the learned Attorney General for  

India informed us, about a conscious decision having  

been taken by the Central Government to henceforth  

allot spectrum only through competitive bidding by way  

of auction.  Such instances can be multiplied.  It is  

therefore obvious, that Government is alive to the  

fact, that disposal of some natural resources have to  

be made only by auction.  If that is so, the first  

question in the reference does not seek a literal  

response.  The first question must be understood to  

seek this Court’s opinion on whether there are  

circumstances in which natural resources ought to be  

disposed of only by auction.  Tendering an opinion,  

without a response to this facet of the matter, would  

not make the seeker of advice, any wiser.  It is this  

aspect alone, which will be the main subject of focus  

of my instant opinion.

3. Before venturing into the area of consideration  

expressed in the foregoing paragraph, it is necessary  

to record, that there was extensive debate during the  

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course of hearing, on whether, maximization of revenue  

must be the sole permissible consideration, for  

disposal of all natural resources, across all sectors  

and in all circumstances.  During the course of this  

debate, the learned Attorney General for India  

acknowledged, that auction by way of competitive  

bidding, was certainly an indisputable means, by which  

maximization of revenue returns is assured.  It is not  

as if, one would like to bind the learned Attorney  

General to the acquiesced proposition.  During the  

course of the days and weeks of erudite debate, learned  

counsel emphasized, that disposal of assets by  

processes of tender, tender-cum-auction and auction,  

could assure maximization of revenue returns.  Of  

course, there are a large variety of tender and auction  

processes, each one with its own nuances.  And we were  

informed, that a rightful choice, would assure  

maximization of revenue returns.  The term “auction”  

expressed in my instant opinion, may therefore be read  

as a means to maximize revenue returns, irrespective of  

whether the means adopted should technically and  

correctly be described as tender, tender-cum-auction,  

or auction.

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4. The concept of equality before the law and equal  

protection of the laws, emerges from the fundamental  

right expressed in Article 14 of the Constitution of  

India.  Equality is a definite concept.  The variation  

in its understanding may at best have reference to the  

maturity and evolution of the nation’s thought.  To  

start with, breach of equality was a plea advanced by  

individuals claiming fair treatment.  Challenges were  

raised also on account of discriminatory treatment.  

Equality was sought by those more meritorious, when  

benefits were bestowed on those with lesser caliber.  

Gradually, judicial intervention came to be sought for  

equitable treatment, even for a section of the society  

put together.  A jurisdiction, which in due course,  

came to be described as public interest litigation. It  

all started with a demand for the basic rights for  

respectable human existence.  Over the years, the  

concept of determination of societal rights, has  

traversed into different directions and avenues.  So  

much so, that now rights in equity, sometimes even  

present situations of conflict between individual  

rights and societal rights.  The present adjudication  

can be stated to be a dispute of such nature.  In a  

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maturing society, individual rights and plural rights  

have to be balanced, so that the oscillating pendulum  

of rights, fairly and equally, recognizes their  

respective parameters. For a country like India, the  

pendulum must be understood to balance the rights of  

one citizen on the one side, and 124,14,91,960 (the  

present estimated population of India) citizens of the  

country on the other.  The true effect of the Article  

14 of the Constitution of India is to provide equality  

before the law and equal protection of the laws not  

only with reference to individual rights, but also by  

ensuring that its citizens on the other side of the  

balance are likewise not deprived of their right to  

equality before the law, and their right to equal  

protection of the laws.  An individual citizen cannot  

be a beneficiary, at the cost of the country (the  

remaining 124,14,91,960  citizens) i.e., the plurality.  

Enriching one at the cost of all others would amount to  

deprivation to the plurality i.e., the nation itself.  

The gist of the first question in the Presidential  

reference, raises the issue whether ownership rights  

over the nation’s natural resources, vest in the  

citizens of the country.  An answer to the instant  

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issue in turn would determine, whether or not it is  

imperative for the executive while formulating a policy  

for the disposal of natural resources, to ensure that  

it subserves public good and public interest.

5. The introduction and acceptance of public  

interest litigation as a jurisprudential concept is a  

matter of extensive debate in India, and even more than  

that, outside India.  This concept brings into focus  

the rights of the plurality (as against individual’s  

right) specially when the plurality is, for one or the  

other reason, not in a position to seek redressal of  

its grievances.  This inadequacy may not always emerge  

from financial constrains.  It may sometimes arise out  

of lack of awareness.  At other times merely from the  

overwhelming might of executive authority.  The  

jurisprudential thought in this country, after the  

emergence of public interest litigation, is seeking to  

strike a balance between individual rights and the  

rights of the plurality.  After all, all natural  

resources are the nation’s collective wealth.  This  

Court has had the occasion over the last few decades,  

to determine rights of citizens with reference to  

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natural resources.  The right of an individual citizen  

to those assets, as also, the rights of the remaining  

citizens of the country, have now emerged on opposite  

sides in a common litigation.  One will endeavour to  

delineate the legal position expressed in decisions  

rendered by this Court, on issues relatable to disposal  

of resources by the State, to determine whether the  

instant issue stands settled, by law declared by this  

Court.

6(a) First of all reference was made to the decision  

of this Court in  S.G. Jaisinghani Vs. Union of India &  

Ors., AIR 1967 SC 1427, wherein this Court observed as  

under:

“14. In     this     context     it     is     important     to    emphasize     that     the     absence     of     arbitrary     power     is    the     first     essential     of     the     rule     of     law     upon     which    our     whole     constitutional     system     is     based.     In     a    system     governed     by     rule     of     law,     discretion,     when    conferred     upon     executive     authorities,     must     be    confined     within     clearly     defined     limits.     The     rule    of     law     from     this     point     of     view     means     that    decisions     should     be     made     by     the     application     of    known     principles     and     rules     and,     in     general,     such    decisions     should     be     predictable     and     the     citizen    should     know     where     he     is  . If a decision is taken  without any principle or without any rule it is  unpredictable and such a decision is the  antithesis of a decision taken in accordance with  the Rule of law. (See Dicey —  Law of the  Constitution —  10th Edn., Introduction cx). “Law  has reached its finest moments,”  stated Douglas,  

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J. in United States v. Wunderlich, (1951) 342 US  98, “when it has freed man from the unlimited  discretion of some ruler.... Where discretion, is  absolute, man has always suffered.” It is in this  sense that the rule of law may be said to be the  sworn enemy of caprice. Discretion, as Lord  Mansfield slated it in classic terms in the case  of John Wilkes, (1770) 4 Burr 2528 at p. 2539  “means sound discretion guided by law. It must be  governed by Rule, not by humour: it must not be  arbitrary, vague, and fanciful.”

(emphasis is mine)

In the aforesaid case, it came to be emphasized that  

executive action should have clearly defined limits and  

should be predictable.  In other words, the man on the  

street should know why the decision has been taken in  

favour of a particular party.  What came to be  

impressed upon was, that lack of transparency in the  

decision making process would render it arbitrary.

(b) Also cited for our consideration was the  

judgment in Rashbihari Panda etc. Vs. State of Orissa  

(1969) 1 SCC 414.  In this case it was canvassed on  

behalf of  the appellants, that the machinery devised  

by the Government for sale of Kendu leaves in which  

they had acquired a trade monopoly, was violative of  

the fundamental rights guaranteed under Articles 14 and  

19(1)(g) of the Constitution. It was pointed out, that  

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in the scheme of events the purchasers were merely  

nominees of the agents. It is also contended, that  

after the Supreme Court had struck down the policy  

under which the agents were to carry on business in  

Kendu leaves on their own and to make profit for  

themselves, the Government to help their party-men set  

up a body of persons who were to be purchasers to whom  

the monopoly sales were to be made at concessional  

rates and that the benefit which would have otherwise  

been earned by the State would now get diverted to  

those purchasers.  It was held:

“15. Section 10 of the Act is a counterpart  of Section 3 and authorises the Government to  sell or otherwise dispose of Kendu leaves in  such manner as the Government may direct. If the  monopoly of purchasing Kendu leaves by Section 3  is valid, insofar as it is intended to be  administered only for the benefit of the State,  the sale or disposal of Kendu leaves by the  Government must also be in the public interest  and not to serve the private interest of any  person or class of persons. It     is     true     that     it    is     for     the     Government,     having     regard     to     all     the    circumstances,     to     act     as     a     prudent     businessman    would,     and     to     sell     or     otherwise     dispose     of     Kendu    leaves     purchased     under     the     monopoly     acquired    under     Section     3,     but     the     profit     resulting     from    the     sale     must     be     for     the     public     benefit     and     not    for     private     gain  . Section 11 which provides that  out of the net profits derived by the Government  from the trade in Kendu leaves an amount not  less than one half is to be paid to the Samitis  and Gram Panchayats emphasises the concept that  the machinery of sale or disposal of Kendu  

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leaves must also be quashed to serve the public  interest. If     the     scheme     of     disposal     creates     a    class     of     middlemen     who     would     purchase     from     the    Government     Kendu     leaves     at     concessional     rates    and     would     earn     large     profits     disproportionate     to    the     nature     of     the     service     rendered     or     duty    performed     by     them,     it     cannot     claim     the    protection     of     Article     19(6)(  ii  )  .

16. Section 10 leaves the method of sale  or disposal of Kendu leaves to the Government as  they think fit. The     action     of     the     Government     if    conceived     and     executed     in     the     interest     of     the    general     public     is     not     open     to     judicial     scrutiny.    But     it     is     not     given     to     the     Government     thereby     to    create     a     monopoly     in     favour     of     third     parties    from     their     own     monopoly  .   

17. Validity of the schemes adopted by the  Government of Orissa for sale of Kendu leaves  must be adjudged in the light of Article 19(1) (g) and Article 14. Instead of inviting tenders  the Government offered to certain old  contractors the option to purchase Kendu leaves  for the year 1968 on terms mentioned therein.  The reason suggested by the Government that  these offers were made because the purchasers  had carried out their obligations in the  previous year to the satisfaction of the  Government is not of any significance. From     the    affidavit     filed     by     the     State     Government     it    appears     that     the     price     fetched     at     public    auctions     before     and     after     January     1968,     were    much     higher     than     the     prices     at     which     Kendu    leaves     were     offered     to     the     old     contractors  . The  Government realised that the scheme of offering  to enter into contracts with the old licensees  and to renew their terms was open to grave  objection, since it sought arbitrarily to  exclude many persons interested in the trade.  The Government then decided to invite offers for  advance purchases of Kendu leaves but restricted  the invitation to those individuals who had  carried out the contracts in the previous year  without default and to the satisfaction of the  

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Government. By the new scheme instead of the  Government making an offer, the existing  contractors were given the exclusive right to  make offers to purchase Kendu leaves. But  insofar as the right to make tenders for the  purchase of Kendu leaves was restricted to those  persons who had obtained contracts in the  previous year the scheme was open to the same  objection. The     right     to     make     offers     being     open    to     a     limited     class     of     persons     it     effectively    shut     out     all     other     persons     carrying     on     trade     in    Kendu     leaves     and     also     new     entrants     into     that    business.     It     was     ex     facie     discriminatory,     and    imposed     unreasonable     restrictions     upon     the     right    of     persons     other     than     existing     contractors     to    carry     on     business.     In     our     view,     both     the     schemes    evolved     by     the     Government     were     violative     of     the    fundamental     right     of     the     petitioners     under    Article     19(1)(  g  )     and     Article     14     because     the    schemes     gave     rise     to     a     monopoly     in     the     trade     in    Kendu     leaves     to     certain     traders,     and     singled     out    other     traders     for     discriminatory     treatment  .   

18. The classification based on the  circumstance that certain existing contractors  had carried out their obligations in the  previous year regularly and to the satisfaction  of the Government is not based on any real and  substantial distinction bearing a just and  reasonable relation to the object sought to be  achieved i.e. effective execution of the  monopoly in the public interest. Exclusion of  all persons interested in the trade, who were  not in the previous year licensees is ex facie  arbitrary, it had no direct relation to the  object of preventing exploitation of pluckers  and growers of Kendu leaves, nor had it any just  or reasonable relation to the securing of the  full benefit from the trade to the State.   

19. Validity     of     the     law     by     which     the     State    assumed     the     monopoly     to     trade     in     a     given    commodity     has     to     be     judged     by     the     test     whether    the     entire     benefit     arising     therefrom     is     to     enure    to     the     State,     and     the     monopoly     is     not     used     as     a    

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cloak     for     conferring     private     benefit     upon     a    limited     class     of     persons  . The scheme adopted by  the Government first of offering to enter into  contracts with certain named licensees, and  later inviting tenders from licensees who had in  the previous year carried out their contracts  satisfactorily is liable to be adjudged void on  the ground that it unreasonably excludes traders  in Kendu leaves from carrying on their business.  The scheme of selling Kendu leaves to selected  purchasers or of accepting tenders only from a  specified class of purchasers was not  “integrally and essentially” connected with the  creation of the monopoly and was not on the view  taken by this Court in Akadasi Padhan case,  (1963) Supp. 2 SCC 691, protected by Article  19(6)(ii): it had therefore to satisfy the  requirement of reasonableness under the first  part of Article 19(6). No attempt was made to  support the scheme on the ground that it imposed  reasonable restrictions on the fundamental  rights of the traders to carry on business in  Kendu leaves. The High Court also did not  consider whether the restrictions imposed upon  persons excluded from the benefit of trading  satisfied the test of reasonableness under the  first part of Article 19(6). The High Court  examined the problem from the angle whether the  action of the State Government was vitiated on  account of any oblique motive, and whether it  was such as a prudent person carrying on  business may adopt.   

20. No     explanation     has     been     attempted     on    behalf     of     the     State     as     to     why     an     offer     made     by     a    well     known     manufacturer     of     bidis     interested     in    the     trade     to     purchase     the     entire     crop     of     Kendu    leaves     for     the     year     1968     for     rupees     three     crores    was     turned     down.     If     the     interests     of     the     State    alone     were     to     be     taken     into     consideration,     the    State     stood     to     gain     more     than     rupees     one     crore    by     accepting     that     offer  . We are not suggesting  that merely because that offer was made, the  Government was bound to accept it. The  Government had to consider, as prudent  

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businessman, whether, having regard to the  circumstances, it should accept the offer,  especially in the light of the financial  position of the offeror, the security which he  was willing to give and the effect which the  acceptance of the offer may have on the other  traders and the general public interest.   

21. The learned Judges of the High Court  have observed that in their view the exercise of  the discretion was not shown to be arbitrary,  nor was the action shown to be lacking in bona  fides. But that conclusion is open to criticism  that the Government is not shown to have  considered the prevailing prices of Kendu leaves  about the time when offers were made, the  estimated crop of Kendu leaves, the conditions  in the market and the likelihood of offerers at  higher prices carrying out their obligations,  and whether it was in the interests of the State  to invite tenders in the open market from all  persons whether they had or had not taken  contracts in the previous year. If the  Government was anxious to ensure due performance  by those who submitted tenders for purchase of  Kendu leaves, it was open to the Government to  devise adequate safeguards in that behalf. In  our     judgment,     the     plea     that     the     action     of     the    Government     was     bona     fide     cannot     be     an     effective    answer     to     a     claim     made     by     a     citizen     that     his    fundamental     rights     were     infringed     by     the     action    of     the     Government,     nor can the claim of the  petitioners be defeated on the plea that the  Government in adopting the impugned scheme  committed an error of judgment.   

22. That plea would have assisted the  Government if the action was in law valid and  the objection was that the Government erred in  the exercise of its discretion. It is  unnecessary in the circumstances to consider  whether the Government acted in the interest of  their party-men and to increase party funds in  devising the schemes for sale of Kendu leaves in  1968.   

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23. During the pendency of these  proceedings the entire year for which the  contracts were given has expired. The persons to  whom the contracts were given are not before us,  and we cannot declare the contracts which had  been entered into by the Government for the sale  of Kendu leaves for the year 1968 unlawful in  these proceedings. Counsel     for     the     appellants    agrees     that     it     would     be     sufficient     if     it     be    directed     that     the     tenders     for     purchase     of     Kendu    leaves     be     invited     by     the     Government     in     the     next    season     from     all     persons     interested     in     the     trade.    We     trust     that     in     accepting     tenders,     the     State    Government     will     act     in     the     interest     of     the    general     public     and     not     of     any     class     of     traders    so     that     in     the     next     season     the     State     may     get     the    entire     benefit     of     the     monopoly     in     the     trade     in    Kendu     leaves     and     no     disproportionate     share    thereof     may     be     diverted     to     any     private     agency  .  Subject to these observations we make no further  order in the petitions out of which these  appeals arise.”

(emphasis is mine)

A perusal of the observations made by this Court  

reveal, that the Government must act as a prudent  

businessman, and that, the profit earned should be for  

public benefit and not for private gains.  A plea of  

reasonable restriction raised under Article 19(6) of  

the Constitution of India to save the governmental  

action was rejected on the ground that the scheme  

created middlemen who would earn large disproportionate  

profits.  This Court also held the action to be  

discriminatory because it excluded others like the  

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petitioners from the zone of consideration.  Finally, a  

direction came to be issued by this Court requiring the  

Government to act in the interest of the general public  

and to invite tenders so that the State may earn the  

entire benefit in a manner that no disproportionate  

profits are diverted to any private agency.   

(c) Reliance was also placed on Ramana Dayaram  

Shetty Vs. International Airport Authority of India &  

Ors., (1979) 3 SCC 489, wherein this Court held as  

under:

“21. This rule also flows directly from the  doctrine of equality embodied in Article 14. It is  now well-settled as a result of the decisions of  this Court in E.P. Royappa v. State of Tamil Nadu,  (1974) 4 SCC 3, and Maneka Gandhi v. Union of  India, (1978) 1 SCC 248, that Article     14     strikes    at     arbitrariness     in     State     action     and     ensures    fairness     and     equality     of     treatment.     It     requires    that     State     action     must     not     be     arbitrary     but     must    be     based     on     some     rational     and     relevant     principle    which     is     non-discriminatory:     it     must     not     be     guided    by     any     extraneous     or     irrelevant     considerations,    because     that     would     be     denial     of     equality  . The  principle of reasonableness and rationality which  is legally as well as philosophically an essential  element of equality or non-arbitrariness is  projected by Article 14 and it must characterise  every State action, whether it be under authority  of law or in exercise of executive power without  making of law. The     State     cannot,     therefore,     act    arbitrarily     in     entering     into     relationship,    contractual     or     otherwise     with     a     third     party,     but    its     action     must     conform     to     some     standard     or     norm    which     is     rational     and     non-discriminatory  . This  principle was recognised and applied by a Bench of  

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this Court presided over by Ray, C.J., in Erusian  Equipment and Chemicals Ltd. v. State of West  Bengal (supra) where the learned Chief Justice  pointed out that-

“the     State     can     carry     on     executive     function    by     making     a     law     or     without     making     a     law.    The     exercise     of     such     powers     and     functions    in     trade     by     the     State     is     subject     to     Part    III     of     the     Constitution.     Article     14     speaks    of     equality     before     the     law     and     equal    protection     of     the     laws.     Equality     of    opportunity     should     apply     to     matters     of    public     contracts.     The     State     has     the     right    to     trade.     The     State     has     there     the     duty     to    observe     equality.     An     ordinary     individual    can     choose     not     to     deal     with     any     person.     The    Government     cannot     choose     to     exclude     persons    by     discrimination  . The order of  blacklisting has the effect of depriving a  person of equality of opportunity in the  matter of public contract. A person who is  on the approved list is unable to enter  into advantageous relations with the  Government because of the order of  blacklisting .... A citizen has a right to  claim equal treatment to enter into a  contract which may be proper, necessary and  essential to his lawful calling .... It is  true that neither the petitioner nor the  respondent has any right to enter into a  contract but they are entitled to equal  treatment with others who offer tender or  quotations for the purchase of the goods”.

It     must,     therefore     follow     as     a     necessary    corollary     from     the     principle     of     equality    enshrined     in     Article     14     that     though     the     State     is    entitled     to     refuse     to     enter     into     relationship    with     any     one,     yet     if     it     does     so,     it     cannot    arbitrarily     choose     any     person     it     likes     for    entering     into     such     relationship     and     discriminate    between     persons     similarly     circumstanced,     but     it    must     act     in     conformity     with     some     standard     or    principle     which     meets     the     test     of     reasonableness    and     non-discrimination     and     any     departure     from    

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such     standard     or     principle     would     be     invalid    unless     it     can     be     supported     or     justified     on     some    rational     and     non     discriminatory     ground  .

22. It is interesting to find that this  rule was recognised and applied by a Constitution  Bench of this Court in a case of sale of kendu  leaves by the Government of Orissa in Rashbihari  Panda v. State of Orissa, (1969) 1 SCC 414…..  This decision wholly supports the view we are  taking in regard to the applicability of the rule  against arbitrariness in State action.”

(emphasis is mine)

An analysis of the aforesaid determination by this  

Court would lead to the inference that the State has  

the right to trade.  In executing public contracts in  

its trading activity the State must be guided by  

relevant principles, and not by extraneous or  

irrelevant consideration.  The same should be based on  

reasonableness and rationality as well as non-

arbitrariness.  It came to be concluded, that the State  

while entering into a contractual relationship, was  

bound to maintain the standards referred to above.  And  

any departure from the said standards would be invalid  

unless the same is supported by good reasons.  

(d) Our attention was also invited to the decision  

rendered in Kasturi Lal Lakshmi Reddy Vs. State of  

Jammu & Kashmir & Anr., (1980) 4 SCC 1, wherein the  

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factual background as well as, the legal position came  

to be expressed in paragraph 19 of the judgment which  

is being set out below:

“19. It is clear from the backdrop of the  facts and circumstances in which the impugned  Order came to be made and the terms and  conditions set out in the impugned Order that it  was not a tapping contract simpliciter which was  intended to be given to the second respondents.  The second respondents wanted to be assured of  regular supply of raw material in the shape of  resin before they could decide to set up a  factory within the State and it was for the  purpose of ensuring supply of such raw material  that the impugned Order was made giving tapping  contract to the second respondents. It was  really by way of allocation of raw material for  running the factory that the impugned Order was  passed. The terms of the impugned Order show  beyond doubt that the second respondents were  under an obligation to set up a factory within  the State and that 3500 metric tonnes of resin  which was permitted to be retained by the second  respondents out of the resin extracted by them  was required to be utilised in the factory to be  set up by them and it was provided that no part  of the resin extracted should be allowed to be  removed outside the State. The whole object of  the impugned Order was to make available 3500  metric tonnes of resin to the second respondents  for the purpose of running the factory to be set  up by them. The     advantage     to     the     State     was     that    a     new     factory     for     manufacture     of     rosin,    turpentine     oil     and     other     derivatives     would     come    up     within     its     territories     offering     more     job    opportunities     to     the     people     of     the     State    increasing     their     prosperity     and     augmenting     the    State     revenues     and     in     addition     the     State     would    be     assured     of     a     definite     supply     of     at     least     1500    metric     tonnes     of     resin     for     itself     without     any    financial     involvement     or     risk     and     with     this    additional     quantity     of     resin     available     to     it,     it    

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would     be     able     to     set     up     another     factory     creating    more     employment     opportunities   and, in fact, as  the counter-affidavit of Ghulam Rasul, Under- Secretary to the Government filed on behalf of  the State shows the Government lost no time in  taking steps to set up a public sector resin  distillation plant in a far-flung area of the  State, namely, Sundarbani, in Rajouri District.  Moreover, the State would be able to secure  extraction of resin from these inaccessible  areas on the best possible terms instead of  allowing them to remain unexploited or given  over at ridiculously low royalty. We cannot  accept the contention of the petitioners that  under the impugned Order a huge benefit was  conferred on the second respondents at the cost  of the State. It is clear from the terms of the  impugned Order that the second respondents would  have to extract at least 5000 metric tonnes of  resin from the blazes allotted to them in order  to be entitled to retain 3500 metric tonnes. The  counter-affidavit of Ghulam Rasul on behalf of  the first respondent and Guran Devaya on behalf  of the second respondents show that the  estimated cost of extraction and collection of  resin from these inaccessible areas would be at  the least Rs 175 per quintal, though according  to Guran Devaya it would be in the neighbourhood  of Rs.200 per quintal, but even if we take the  cost at the minimum figure of Rs.175 per  quintal, the total cost of extraction and  collection would come to Rs.87,50,000 and on  this investment of Rs.87,50,000 required to be  made by the second respondents the amount of  interest at the prevailing bank rate would work  out to about Rs.13,00,000. Now, as against this  expenditure of Rs 87,50,000 plus Rs.13,00,000  the second respondents would be entitled to  claim from the State, in respect of 1500 metric  tonnes of resin to be delivered to it only at  the rate sanctioned by the Forest Department for  the adjoining accessible forests which were  being worked on wage-contract basis. It is  stated in the counter-affidavits of Ghulam Rasul  and Guran Devaya and this statement is not  

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seriously challenged on behalf of the  petitioners, that the cost of extraction and  collection as sanctioned by the Forest  Department for the adjoining accessible forests  given on wage-contract basis in the year 1978-79  was Rs.114 per quintal and the second  respondents would, thus, be entitled to claim  from the State no more than Rs.114 per quintal  in respect of 1500 metric tonnes to be delivered  to it and apart from bearing the difference  between the actual cost of extraction and  collection and the amount received from the  State at the rate of Rs.114 per quintal in  respect of 1500 metric tonnes, the second  respondents would have to pay the price of the  remaining 3500 metric tonnes to be retained by  them at the rate of Rs.350 per quintal.  On this  reckoning, the cost of 3500 metric tonnes to be  retained by the second respondents would work  out at Rs.474 per quintal. The result would be  that under the impugned Order the State would  get 1500 metric tonnes of resin at the rate of  Rs.114 per quintal while the second respondents  would have to pay at the rate of Rs.474 per  quintal for the balance of 3500 metric tonnes  retained by them. Obviously, a large benefit  would accrue to the State under the impugned  Order. If the State were to get the blazes in  these inaccessible areas tapped through wage  contract, the minimum cost would be Rs.175 per  quintal, without taking into account the  additional expenditure on account of interest,  but under the impugned Order the State would get  1500 metric tonnes of resin at a greatly reduced  rate of Rs.114 per quintal without any risk or  hazard. The State would also receive for 3500  metric tonnes of resin retained by the second  respondents price or royalty at the rate of  Rs.474 per quintal which would be much higher  than the rate of Rs.260 per quintal at which the  State was allotting resin to medium scale  industrial units and the rate of Rs.320 per  quintal at which it was allotting resin to small  scale units within the State. It     is     difficult     to    see     how     on     these     facts     the     impugned     Order     could    

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be     said     to     be     disadvantageous     to     the     State     or     in    any     way     favouring     the     second     respondents     at     the    cost     of     the     State.     The     argument     of     the    petitioners     was     that     at     the     auctions     held     in    December     1978,     January     1979     and     April     1979,     the    price     of     resin     realised     was     as     much     as     Rs.484,    Rs.520     and     Rs.700     per     quintal     respectively     and    when     the     market     price     was     so     high,     it     was    improper     and     contrary     to     public     interest     on     the    part     of     the     State     to     sell     resin     to     the     second    respondents     at     the     rate     of     Rs.320     per     quintal    under     the     impugned     Order.     This     argument,    plausible     though     it     may     seem,     is     fallacious    because     it     does     not     take     into     account     the     policy    of     the     State     not     to     allow     export     of     resin    outside     its     territories     but     to     allot     it     only     for    use     in     factories     set     up     within     the     State.     It     is    obvious     that,     in     view     of     this     policy,     no     resin    would     be     auctioned     by     the     State     and     there     would    be     no     question     of     sale     of     resin     in     the     open    market     and     in     this     situation,     it     would     be    totally     irrelevant     to     import     the     concept     of    market     price     with     reference     to     which     the    adequacy     of     the     price     charged     by     the     State     to    the     2nd     respondents     could     be     judged.     If     the    State     were     simply     selling     resin,     there     can     be     no    doubt     that     the     State     must     endeavour     to     obtain    the     highest     price     subject,     of     course,     to     any    other     overriding     considerations     of     public    interest     and     in     that     event,     its     action     in     giving    resin     to     a     private     individual     at     a     lesser     price    would     be     arbitrary     and     contrary     to     public    interest.     But,     where     the     State     has,     as     a     matter    of     policy,     stopped     selling     resin     to     outsiders    and     decided     to     allot     it     only     to     industries     set    up     within     the     State     for     the     purpose     of    encouraging     industrialisation,     there     can     be     no    scope     for     complaint     that     the     State     is     giving    resin     at     a     lesser     price     than     that     which     could     be    obtained     in     the     open     market.     The     yardstick     of    price     in     the     open     market     would     be     wholly     inept,    because     in     view     of     the     State     policy,     there     would    be     no     question     of     any     resin     being     sold     in     the    open     market.     The     object     of     the     State     in     such     a    case     is     not     to     earn     revenue     from     sale     of     resin,    

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but     to     promote     the     setting     up     of     industries    within     the     State  . Moreover, the prices realised  at the auctions held in December 1978, January  1979 and April 1979 did not reflect the correct  and genuine price of resin, because by the time  these auctions came to be held, it had become  known that the State had taken a policy decision  to ban export of resin from its territories with  effect from 1979-80 and the prices realised at  the auctions were therefore scarcity prices. In  fact, the auction held in April 1979 was the  last auction in the State and since it was known  that in future no resin would be available for  sale by auction in the open market to outsiders,  an unduly high price of Rs.700 per quintal was  offered by the factory owners having their  factories outside the State, so that they would  get as much resin for the purpose of feeding  their industrial units for some time. The  counter-affidavits show that, in fact, the  average sale price of resin realised during the  year 1978-79 was only Rs.433 per quintal and as  compared to this price, the 2nd respondents were  required to pay price or royalty at a higher  rate of Rs.474 per quintal for 3500 metric  tonnes of resin to be retained by them under the  impugned Order. It is in the circumstances  impossible to see how it can at all be said that  any benefit was conferred on the second  respondents at the cost of the State. The first  head of challenge against the impugned Order  must, therefore, be rejected.”

(emphasis is mine)

An examination of the factual position of the  

controversy dealt with in the judgment extracted above  

reveals, that the State Government formulated a policy  

to set up a factory within the State, which would  

result in creation of more job opportunities for the  

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people of the State.  The setting up of the said  

factory would assure the State of atleast 1500 metric  

tones of resin without any financial involvement.  This  

in turn would enable the State to set up another  

factory creating further employment opportunities for  

the people of the State.  It is therefore, that this  

Court concluded that the impugned order passed by the  

State in favour of the second respondent could not be  

said to be disadvantageous to the State and favouring  

the second respondent.  In a manner of understanding,  

this Court found no infirmity in the impugned order  

passed by the State Government because the State  

Government had given effect to a policy which would  

“best subserve the common good” of the inhabitants of  

the State (as in Article 39(b) of the Constitution of  

India) while assigning a material resource, though no  

reference was made to Article 39(b) of the Constitution  

of India in the judgment.  What is also of importance  

is, that this Court expressly noticed, that if the  

State Government was simply selling resin, it was  

obliged to obtain the highest possible price.

(e) Reference was then made to Dwarkadas Marfatia  

and Sons Vs. Board of Trustees of the Port of Bombay,  

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(1989) 3 SCC 293, wherein the case of the respondent  

was, that in his evidence it had been mentioned by  

Katara that the plot had been allotted to Dhanji Mavji  

since it was the policy of the Bombay Port Trust to  

allot a reconstituted plot to a person occupying a  

major portion of such plot. It was further asserted,  

that there was no challenge to this evidence in cross-

examination. It was also asserted, that there was no  

evidence on the alleged policy of the Port Trust of  

giving plots on joint tenancy to all the occupants.  

According to learned counsel for the respondent, in the  

letters addressed by the Port Trust and in the letters  

by and on behalf of the appellant and/or their alleged  

associate concerns they had specifically admitted, that  

there was a policy of the Port Trust to allot plots to  

the occupants of the major portions thereof and in fact  

a grievance was made by them, that in accordance with  

the said policy of the Bombay Port Trust, a plot was  

not being allotted to the associates of the appellant.  

In that view of the matter it was contended, that the  

issue  whether the plot should have been given on joint  

tenancy or not, could not have been gone into by the  

court in exercise of its jurisdiction of judicial  

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review. Reliance was placed on the observations of Lord  

Justice Diplock in Council of Civil Service Unions v.  

Minister for the Civil Service, (1984) 3 All ER 935,  

950, where the learned Lord Justice classified 3  

grounds subject to control of judicial review, namely,  

illegality, irrationality and procedural impropriety.  

In the aforesaid factual background this Court  

concluded as under:

“21. We are unable to accept the  submissions. Being     a     public     body     even     in     respect    of     its     dealing     with     its     tenant,     it     must     act     in    public     interest,     and     an     infraction     of     that     duty    is     amenable     to     examination     either     in     civil     suit    or     in     writ     jurisdiction  . ….. …..

28. Learned Additional Solicitor General  reiterated on behalf of the respondent that no  question of mala fide had been alleged or proved  in these proceedings. Factually, he is right.  But     it     has     to     be     borne     in     mind     that     governmental    policy     would     be     invalid     as     lacking     in     public    interest,     unreasonable     or     contrary     to     the    professed     standards     and     this     is     different     from    the     fact     that     it     was     not     done     bona     fide  . It is  true as learned Additional Solicitor General  contended that there is always a presumption  that a governmental action is reasonable and in  public interest. It is for the party challenging  its validity to show that the action is  unreasonable, arbitrary or contrary to the  professed norms or not informed by public  interest, and the burden is a heavy one.

….. …...

37. As we look upon the facts of this  

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case, there     was     an     implied     obligation     in     respect    of     dealings     with     the     tenants/occupants     of     the    Port     Trust     authority     to     act     in     public    interest/purpose.   That     requirement     is     fulfilled    if     it     is     demonstrated     that     the     Port     Trust    authorities     have     acted     in     pursuance     of     a     policy    which     is     referable     to     public     purpose  . Once that  norm is established whether that policy is the  best policy or whether another policy was  possible, is not relevant for consideration. It  is, therefore, not necessary for our present  purposes to dwell on the question whether the  obligation of the Port Trust authorities to act  in pursuance of a public purpose was a public  law purpose or a private law purpose. Under     the    constitutional     scheme     of     this     country     the     Port    Trust     authorities     were     required     by     relevant     law    to     act     in     pursuance     of     public     purpose.     We     are    satisfied     that     they     have     proceeded     to     so     act  .

(emphasis is mine)

In the instant matter, even though the controversy  

pertained to a tenancy issue, this Court held, that a  

public body was bound to act in public interest.

(f) In chronological sequence, learned counsel then  

cited Mahabir Auto Stores & Ors. Vs. Indian Oil  

Corporation & Ors. (1990) 3 SCC 752.  Relevant  

observations made therein, with reference to the  

present controversy, are being placed below:

“12. It is well settled that every action of the  State or an instrumentality of the State in exercise  of its executive power, must be informed by reason.  In appropriate cases, actions uninformed by reason  may be questioned as arbitrary in proceedings under  Article 226 or Article 32 of the Constitution.  Reliance in this connection may be placed on the  

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observations of this Court in Radha Krishna Agarwal  v. State of Bihar, (1977) 3 SCC 457. It appears to  us, at the outset, that in the facts and  circumstances of the case, the respondent company  IOC is an organ of the State or an instrumentality  of the State as contemplated under Article 12 of the  Constitution. The     State     acts     in     its     executive     power    under     Article     298     of     the     Constitution     in     entering     or    not     entering     in     contracts     with     individual     parties.    Article     14     of     the     Constitution     would     be     applicable    to     those     exercises     of     power  . Therefore, the action  of State organ under Article 14 can be checked. See  Radha Krishna Agarwal v. State of Bihar at p. 462,  but Article 14 of the Constitution cannot and has  not been construed as a charter for judicial review  of State action after the contract has been entered  into, to call upon the State to account for its  actions in its manifold activities by stating  reasons for such actions. In a situation of this  nature certain activities of the respondent company  which constituted State under Article 12 of the  Constitution may be in certain circumstances subject  to Article 14 of the Constitution in entering or not  entering into contracts and must be reasonable and  taken only upon lawful and relevant consideration;  it depends upon facts and circumstances of a  particular transaction whether hearing is necessary  and reasons have to be stated. In case any right  conferred on the citizens which is sought to be  interfered, such action is subject to Article 14 of  the Constitution, and must be reasonable and can be  taken only upon lawful and relevant grounds of  public interest.  Where     there     is     arbitrariness     in    State     action     of     this     type     of     entering     or     not    entering     into     contracts,     Article     14     springs     up     and    judicial     review     strikes     such     an     action     down.     Every    action     of     the     State     executive     authority     must     be    subject     to     rule     of     law     and     must     be     informed     by    reason.     So,     whatever     be     the     activity     of     the     public    authority,     in     such     monopoly     or     semi-monopoly    dealings,     it     should     meet     the     test     of     Article     14     of    the     Constitution.     If     a     governmental     action     even     in    the     matters     of     entering     or     not     entering     into    contracts,     fails     to     satisfy     the     test     of    reasonableness,     the     same     would     be     unreasonable  . In  

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this connection reference may be made to E.P.  Royappa v. State of Tamil Nadu, (1974) 4 SCC 3,  Maneka Gandhi v. Union of India, (1978) 1 SCC 248,  Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC  722, R.D. Shetty v. International Airport Authority  of India, (1979) 3 SCC 489, and also Dwarkadas  Marfatia and Sons v. Board of Trustees of the Port  of Bombay, (1989) 3 SCC 293. It appears to us that  rule of reason and rule against arbitrariness and  discrimination, rules of fair play and natural  justice are part of the rule of law applicable in  situation or action by State instrumentality in  dealing with citizens in a situation like the  present one. Even     though     the     rights     of     the     citizens    are     in     the     nature     of     contractual     rights,     the     manner,    the     method     and     motive     of     a     decision     of     entering     or    not     entering     into     a     contract,     are     subject     to    judicial     review     on     the     touchstone     of     relevance     and    reasonableness,     fair     play,     natural     justice,     equality    and     non-discrimination     in     the     type     of     the    transactions     and     nature     of     the     dealing     as     in     the    present     case  . ….. …..

17. We are of the opinion that in all such cases  whether public law or private law rights are  involved, depends upon the facts and circumstances  of the case. The dichotomy between rights and  remedies cannot be obliterated by any strait-jacket  formula. It has to be examined in each particular  case. Mr Salve sought to urge that there are certain  cases under Article 14 of arbitrary exercise of such  “power”  and not cases of exercise of a “right”  arising either under a contract or under a statute.  We are of the opinion that that would depend upon  the factual matrix.  

18. Having     considered     the     facts     and     circumstances    of     the     case     and     the     nature     of     the     contentions     and    the     dealing     between     the     parties     and     in     view     of     the    present     state     of     law,     we     are     of     the     opinion     that    decision     of     the     State/public     authority     under     Article    298     of     the     Constitution,     is     an     administrative    decision     and     can     be     impeached     on     the     ground     that     the    decision     is     arbitrary     or     violative     of     Article     14     of    

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the     Constitution     of     India     on     any     of     the     grounds    available     in     public     law     field  . It appears to us that  in respect of corporation like IOC when without  informing the parties concerned, as in the case of  the appellant-firm herein on alleged change of  policy and on that basis action to seek to bring to  an end to course of transaction over 18 years  involving large amounts of money is not fair action,  especially in view of the monopolistic nature of the  power of the respondent in this field. Therefore,     it    is     necessary     to     reiterate     that     even     in     the     field     of    public     law,     the     relevant     persons     concerned     or     to     be    affected,     should     be     taken     into     confidence.     Whether    and     in     what     circumstances     that     confidence     should     be    taken     into     consideration     cannot     be     laid     down     on     any    strait-jacket     basis.     It     depends     on     the     nature     of     the    right     involved     and     nature     of     the     power     sought     to     be    exercised     in     a     particular     situation.     It     is     true     that    there     is     discrimination     between     power     and     right     but    whether     the     State     or     the     instrumentality     of     a     State    has     the     right     to     function     in     public     field     or     private    field     is     a     matter     which,     in     our     opinion,     depends    upon     the     facts     and     circumstances     of     the     situation,    but     such     exercise     of     power     cannot     be     dealt     with     by    the     State     or     the     instrumentality     of     the     State    without     informing     and     taking     into     confidence,     the    party     whose     rights     and     powers     are     affected     or     sought    to     be     affected  , into confidence. In such situations  most often people feel aggrieved by exclusion of  knowledge if not taken into confidence.  

19. Such transaction should continue as an  administrative decision with the organ of the State.  It     may     be     contractual     or     statutory     but     in     a    situation     of     transaction     between     the     parties     for    nearly     two     decades,     such     procedure     should     be    followed     which     will     be     reasonable,     fair     and     just,    that     is,     the     process     which     normally     be     accepted     (  sic    is     expected)     to     be     followed     by     an     organ     of     the     State    and     that     process     must     be     conscious     and     all     those    affected     should     be     taken     into     confidence  .   

20. Having regard to the nature of the  transaction, we are of the opinion that it would be  appropriate to state that in cases where the  

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instrumentality of the state enters the contractual  field, it should be governed by the incidence of the  contract. It is true that it may not be necessary to  give reasons but, in our opinion, in the field of  this nature fairness must be there to the parties  concerned, and having regard to the large number or  the long period and the nature of the dealings  between the parties, the appellant should have been  taken into confidence. Equality and fairness at  least demands this much from an instrumentality of  the State dealing with a right of the State not to  treat the contract as subsisting. We must, however,  evolve such process which will work. ….. …..

23. It     is     not     our     decision     which     is     important     but    a     decision     on     the     above     basis     should     be     arrived     at    which     should     be     fair,     just     and     reasonable   —    and    consistent     with     good     government   —    which     will     be    arrived     at     fairly     and     should     be     taken     after     taking    the     persons     concerned     whose     rights/obligations     are    affected,     into     confidence.     Fairness     in     such     action    should     be     perceptible,     if     not     transparent  .”

(emphasis is mine)

What came to be concluded in the judgment extracted  

above can be described as an extension of the  

applicability of Article 14 of the Constitution of  

India on the subject of contractual agreements.  

Hithertobefore, an act of awarding contracts was  

adjudged on the touchstone of fairness.  For the first  

time, even a decision of not entering into a  

contractual arrangement has been brought under the  

scope of judicial review.  The requirement of being  

fair, just and reasonable, i.e., principles applicable  

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in good governance, have been held to be equally  

applicable for not entering into a contractual  

arrangement.  Another facet of the aforesaid decision  

was, that this Court expressed, that the contracting  

party had the right to be informed (the right to know)  

why the contractual arrangement which had continued for  

long years (from 1965 to 1983) was being terminated.

(g) Much emphasis was placed on the judgment  

rendered by this Court in Kumari Shrilekha Vidyarthi &  

Ors. Vs. State of U.P. & Ors. (1991) 1 SCC 212.  

Observations which relied upon during the course of  

hearing are being set out hereinunder:

21. The Preamble of the Constitution of  India resolves to secure to all its citizens  Justice, social, economic and political; and  Equality of status and opportunity. Every State  action must be aimed at achieving this goal. Part  IV of the Constitution contains ‘Directives  Principles of State Policy’ which are fundamental  in the governance of the country and are aimed at  securing social and economic freedoms by  appropriate State action which is complementary  to individual fundamental rights guaranteed in  Part III for protection against excesses of State  action, to realise the vision in the Preamble.  This     being     the     philosophy     of     the     Constitution,    can     it     be     said     that     it     contemplates     exclusion     of    Article     14   —   non-arbitrariness     which     is     basic     to    rule     of     law   —   from     State     actions     in     contractual    field     when     all     actions     of     the     State     are     meant     for    public     good     and     expected     to     be     fair     and     just?     We    have     no     doubt     that     the     Constitution     does     not    envisage     or     permit     unfairness     or     unreasonableness    

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in     State     actions     in     any     sphere     of     its     activity    contrary     to     the     professed     ideals     in     the     Preamble.    In     our     opinion,     it     would     be     alien     to     the    constitutional     scheme     to     accept     the     argument     of    exclusion     of     Article     14     in     contractual     matters  .  The scope and permissible grounds of judicial  review in such matters and the relief which may  be available are different matters but that does  not justify the view of its total exclusion. This  is     more     so     when     the     modern     trend     is     also     to    examine     the     unreasonableness     of     a     term     in     such    contracts     where     the     bargaining     power     is     unequal    so     that     these     are     not     negotiated     contracts     but    standard     form     contracts     between     unequals  .

22. There     is     an     obvious     difference     in     the    contracts     between     private     parties     and     contracts    to     which     the     State     is     a     party.     Private     parties    are     concerned     only     with     their     personal     interest    whereas     the     State     while     exercising     its     powers     and    discharging     its     functions,     acts     indubitably,     as    is     expected     of     it,     for     public     good     and     in     public    interest.     The     impact     of     every     State     action     is    also     on     public     interest.     This     factor     alone     is    sufficient     to     import     at     least     the     minimal    requirements     of     public     law     obligations     and    impress     with     this     character     the     contracts     made     by    the     State     or     its     instrumentality  . It is a  different matter that the scope of judicial  review in respect of disputes falling within the  domain of contractual obligations may be more  limited and in doubtful cases the parties may be  relegated to adjudication of their rights by  resort to remedies provided for adjudication of  purely contractual disputes. However,     to     the    extent,     challenge     is     made     on     the     ground     of    violation     of     Article     14     by     alleging     that     the    impugned     act     is     arbitrary,     unfair     or    unreasonable,     the     fact     that     the     dispute     also    falls     within     the     domain     of     contractual    obligations     would     not     relieve     the     State     of     its    obligation     to     comply     with     the     basic     requirements    of     Article     14  . To this extent, the obligation is  of a public character invariably in every case  irrespective of there being any other right or  

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obligation in addition thereto. An additional  contractual obligation cannot divest the claimant  of the guarantee under Article 14 of non- arbitrariness at the hands of the State in any of  its actions.

23. Thus,     in     a     case     like     the     present,     if     it    is     shown     that     the     impugned     State     action     is    arbitrary     and,     therefore,     violative     of     Article     14    of     the     Constitution,     there     can     be     no     impediment    in     striking     down     the     impugned     act     irrespective     of    the     question     whether     an     additional     right,    contractual     or     statutory,     if     any,     is     also    available     to     the     aggrieved     persons  .

24. The State cannot be attributed the  split personality of Dr Jekyll and Mr Hyde in the  contractual field so as to impress on it all the  characteristics of the State at the threshold  while making a contract requiring it to fulfil  the obligation of Article 14 of the Constitution  and thereafter permitting it to cast off its garb  of State to adorn the new robe of a private body  during the subsistence of the contract enabling  it to act arbitrarily subject only to the  contractual obligations and remedies flowing from  it. It     is     really     the     nature     of     its     personality     as    State     which     is     significant     and     must     characterize    all     its     actions,     in     whatever     field,     and     not     the    nature     of     function,     contractual     or     otherwise,    which     is     decisive     of     the     nature     of     scrutiny    permitted     for     examining     the     validity     of     its     act.    The     requirement     of     Article     14     being     the     duty     to    act     fairly,     justly     and     reasonably,     there     is    nothing     which     militates     against     the     concept     of    requiring     the     State     always     to     so     act,     even     in    contractual     matters  . There is a basic difference  between the acts of the State which must  invariably be in pubic interest and those of a  private individual, engaged in similar  activities, being primarily for personal gain,  which may or may not promote public interest.  Viewed     in     this     manner,     in     which     we     find     no    conceptual     difficulty     or     anachronism,     we     find     no    

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reason     why     the     requirement     of     Article     14     should    not     extend     even     in     the     sphere     of     contractual    matters     for     regulating     the     conduct     of     the     State    activity.  

25. In Wade: Administrative Law (6th edn.)  after indicating that ‘the powers of public  authorities are essentially different from those  of private persons’, it has been succinctly  stated at pp. 400-01 as under:

“... The     whole     conception     of     unfettered    discretion     is     inappropriate     to     a     public    authority,     which     possesses     powers     solely     in    order     that     it     may     use     them     for     the     public    good.  

There is nothing paradoxical in the  imposition of such legal limits. It would  indeed be paradoxical if they were not  imposed. Nor is this principle an oddity of  British or American law: it is equally  prominent in French law. Nor is it a  special restriction which fetters only  local authorities: it applies no less to  ministers of the Crown. Nor     is     it     confined    to     the     sphere     of     administration:     it    operates     wherever     discretion     is     given     for    some     public     purpose  , for example where a  judge has a discretion to order jury trial.  It is only where powers are given for the  personal benefit of the person empowered  that the discretion is absolute. Plainly  this can have no application in public law.  

For     the     same     reasons     there     should     in    principle     be     no     such     thing     as     unreviewable    administrative     discretion,     which     should     be    just     as     much     a     contradiction     in     terms     as    unfettered     discretion  . The question which  has to be asked is what is the scope of  judicial review, and in a few special cases  the scope for the review of discretionary  decisions may be minimal. It remains  axiomatic that all discretion is capable of  

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abuse, and that legal limits to every power  are to be found somewhere.

The view, we are taking, is, therefore, in  consonance with the current thought in this  field. We have no doubt that the scope of  judicial review may vary with reference to the  type of matter involved, but the fact that the  action is reviewable, irrespective of the sphere  in which it is exercised, cannot be doubted.  

26. A useful treatment of the subject is to  be found in an article “Judicial Review and  Contractual Powers of Public Authorities”, (1990)  106 LQR 277-92. The conclusion drawn in the  article on the basis of recent English decisions  is that “public law principles designed to  protect the citizens should apply because of the  public nature of the body, and they may have some  role in protecting the public interest”. The  trend now is towards judicial review of  contractual powers and the other activities of  the government. Reference is made also to the  recent decision of the Court of Appeal in Jones  v. Swansea City Council, (1990) 1 WLR 54, where  the court's clear inclination to the view that  contractual powers should generally be reviewable  is indicated, even though the Court of Appeal  faltered at the last step and refrained from  saying so. It     is     significant     to     note     that    emphasis     now     is     on     reviewability     of     every     State    action     because     it     stems     not     from     the     nature     of    function,     but     from     the     public     nature     of     the     body    exercising     that     function;     and     all     powers    possessed     by     a     public     authority,     howsoever    conferred,     are     possessed   ‘  solely     in     order     that     it    may     use     them     for     the     public     good  ’  .     The     only    exception     limiting     the     same     is     to     be     found     in    specific     cases     where     such     exclusion     may     be    desirable     for     strong     reasons     of     public     policy  .  This, however, does not justify exclusion of  reviewability in the contractual field involving  the State since it is no longer a mere private  activity to be excluded from public view or  scrutiny.  

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27. Unlike a private party whose acts  uninformed by reason and influenced by personal  predilections in contractual matters may result  in adverse consequences to it alone without  affecting the public interest, any such act of  the State or a public body even in this field  would adversely affect the public interest. Every  holder     of     a     public     office     by     virtue     of     which     he    acts     on     behalf     of     the     State     or     public     body     is    ultimately     accountable     to     the     people     in     whom     the    sovereignty     vests.     As     such,     all     powers     so     vested    in     him     are     meant     to     be     exercised     for     public     good    and     promoting     the     public     interest.     This     is    equally     true     of     all     actions     even     in     the     field     of    contract. Thus, every holder of a public office  is a trustee whose highest duty is to the people  of the country and, therefore, every act of the  holder of a public office, irrespective of the  label classifying that act, is in discharge of  public duty meant ultimately for public good.  With     the     diversification     of     State     activity     in     a    Welfare     State     requiring     the     State     to     discharge    its     wide     ranging     functions     even     through     its    several     instrumentalities,     which     requires    entering     into     contracts     also,     it     would     be     unreal    and     not     pragmatic,     apart     from     being     unjustified    to     exclude     contractual     matters     from     the     sphere     of    State     actions     required     to     be     non-arbitrary     and    justified     on     the     touchstone     of     Article     14  .  

28. Even assuming that it is necessary to  import the concept of presence of some public  element in a State action to attract Article 14  and permit judicial review, we have no hesitation  in saying that the ultimate impact of all actions  of the State or a public body being undoubtedly  on public interest, the requisite public element  for this purpose is present also in contractual  matters. We,     therefore,     find     it     difficult     and    unrealistic     to     exclude     the     State     actions     in    contractual     matters,     after     the     contract     has     been    made,     from     the     purview     of     judicial     review     to     test    its     validity     on     the     anvil     of     Article     14  .  

29. It     can     no     longer     be     doubted     at     this    

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point     of     time     that     Article     14     of     the     Constitution    of     India     applies     also     to     matters     of     governmental    policy     and     if     the     policy     or     any     action     of     the    government,     even     in     contractual     matters,     fails     to    satisfy     the     test     of     reasonableness,     it     would     be    unconstitutional. [See Ramana Dayaram Shetty v.  International Airport Authority of India, (1979)  3 SCC 489, and Kasturi Lal Lakshmi Reddy v. State  of Jammu and Kashmir, (1980) 4 SCC 1]. In Col.  A.S. Sangwan v. Union of India, (1980) Supp. SCC  559, while the discretion to change the policy in  exercise of the executive power, when not  trammelled by the statute or rule, was held to be  wide, it was emphasised as imperative and  implicit in Article 14 of the Constitution that a  change in policy must be made fairly and should  not give the impression that it was so done  arbitrarily or by any ulterior criteria. The wide  sweep of Article 14 and the requirement of every  State action qualifying for its validity on this  touchstone, irrespective of the field of activity  of the State, has long been settled. Later  decisions of this Court have reinforced the  foundation of this tenet and it would be  sufficient to refer only to two recent decisions  of this Court for this purpose.  ….. …..

33. No doubt, it is true, as indicated by  us earlier, that there is a presumption of  validity of the State action and the burden is on  the person who alleges violation of Article 14 to  prove the assertion. However,     where     no     plausible    reason     or     principle     is     indicated     nor     is     it    discernible     and     the     impugned     State     action,    therefore,     appears     to     be     ex     facie     arbitrary,     the    initial     burden     to     prove     the     arbitrariness     is    discharged     shifting     onus     on     the     State     to     justify    its     action     as     fair     and     reasonable.     If     the     State    is     unable     to     produce     material     to     justify     its    action     as     fair     and     reasonable,     the     burden     on     the    person     alleging     arbitrariness     must     be     held     to     be    discharged. The scope of judicial review is  limited as indicated in Dwarkadas Marfatia case  (supra) to oversee the State action for the  

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purpose of satisfying that it is not vitiated by  the vice of arbitrariness and no more. The wisdom  of the policy or the lack of it or the  desirability of a better alternative is not  within the permissible scope of judicial review  in such cases. It is not for the courts to recast  the policy or to substitute it with another which  is considered to be more appropriate, once the  attack on the ground of arbitrariness is  successfully repelled by showing that the act  which was done, was fair and reasonable in the  facts and circumstances of the case. As indicated  by Diplock, L.J., in Council of Civil Service  Unions v. Minister for the Civil Service, (1984)  3 All ER 935, the power of judicial review is  limited to the grounds of illegality,  irrationality and procedural impropriety. In the  case of arbitrariness, the defect of  irrationality is obvious.   ….. …..

36. The meaning and true import of  arbitrariness is more easily visualized than  precisely stated or defined. The question,  whether an impugned act is arbitrary or not, is  ultimately to be answered on the facts and in the  circumstances of a given case. An obvious test to  apply is to see whether there is any discernible  principle emerging from the impugned act and if  so, does it satisfy the test of reasonableness.  Where a mode is prescribed for doing an act and  there is no impediment in following that  procedure, performance of the act otherwise and  in a manner which does not disclose any  discernible principle which is reasonable, may  itself attract the vice of arbitrariness. Every  State     action     must     be     informed     by     reason     and     it    follows     that     an     act     uninformed     by     reason,     is    arbitrary.     Rule     of     law     contemplates     governance     by    laws     and     not     by     humour,     whims     or     caprices     of     the    men     to     whom     the     governance     is     entrusted     for     the    time     being  . It is trite that ‘be you ever so  high, the laws are above you’. This is what men  in power must remember, always.”

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(emphasis is mine)

The legal proposition laid down in the instant judgment  

may be summarized as follows.  Firstly, State action in  

the contractual field are meant for public good and in  

public interest and are expected to be fair and just.  

Secondly, it would be alien to the constitutional  

scheme to accept the argument of exclusion of Article  

14 of the Constitution of India in contractual matters.  

Thirdly, the fact that a dispute falls in the domain of  

contractual obligation, would make no difference, to a  

challenge raised under Article 14 of the Constitution  

of India on the ground that the impugned act is  

arbitrary, unfair and unreasonable. Fourthly, every  

State action must be informed of reason and it follows  

that an act uninformed by reason is arbitrary. Fifthly,  

where no plausible reason or principle is indicated (or  

is discernible), and where the impugned action ex facie  

appears to be arbitrary, the onus shifts on the State  

to justify its action as fair and reasonable.  Sixthly,  

every holder of public office is accountable to the  

people in whom the sovereignty vests.  All powers  

vested in a public office, even in the field of  

contract, are meant to be exercised for public good and  

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for promoting public interest.  And Seventhly, Article  

14 of the Constitution of India applies also to matters  

of governmental policy even in contractual matters, and  

if the policy or any action of the government fails to  

satisfy the test of reasonableness, the same would be  

unconstitutional.

(h) Thereafter our attention was invited to the  

decision rendered in Lucknow Development Authority Vs.  

M.K. Gupta, (1994) 1 SCC 243.  Seriously, the instant  

judgment has no direct bearing to the issue in hand.  

The judgment determines whether compensation can be  

awarded to an aggrieved consumer under the Consumer  

Protection Act, 1986.  It also settles who should  

shoulder the responsibility of paying the compensation  

awarded.  But all the same it has some interesting  

observations which may be noticed in the context of the  

matter under deliberation.  Portions of the  

observations emphasized upon are being noticed below:

“8. …..  Under     our     Constitution     sovereignty    vests     in     the     people.     Every     limb     of     the    constitutional     machinery     is     obliged     to     be     people    oriented.     No     functionary     in     exercise     of    statutory     power     can     claim     immunity,     except     to    the     extent     protected     by     the     statute     itself.    Public     authorities     acting     in     violation     of    constitutional     or     statutory     provisions    oppressively     are     accountable     for     their     behaviour    

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before     authorities     created     under     the     statute    like     the     commission     or     the     courts     entrusted     with    responsibility     of     maintaining     the     rule     of     law  .  Each hierarchy in the Act is empowered to  entertain a complaint by the consumer for value  of the goods or services and compensation. The  word ‘compensation’  is again of very wide  connotation. It has not been defined in the Act.  According to dictionary it means, ‘compensating  or being compensated; thing given as  recompense;’. In legal sense it may constitute  actual loss or expected loss and may extend to  physical, mental or even emotional suffering,  insult or injury or loss. Therefore, when the  Commission has been vested with the jurisdiction  to award value of goods or services and  compensation it has to be construed widely  enabling the Commission to determine  compensation for any loss or damage suffered by  a consumer which in law is otherwise included in  wide meaning of compensation. The provision in  our opinion enables a consumer to claim and  empowers the Commission to redress any injustice  done to him. Any other construction would defeat  the very purpose of the Act. The Commission or  the Forum in the Act is thus entitled to award  not only value of the goods or services but also  to compensate a consumer for injustice suffered  by him.

….. …..

10. Who should pay the amount determined by  the Commission for harassment and agony, the  statutory authority or should it be realised  from those who were responsible for it?  Compensation as explained includes both the just  equivalent for loss of goods or services and  also for sufferance of injustice. For instance  in Civil Appeal No. ... of 1993 arising out of  SLP (Civil) No. 659 of 1991 the Commission  directed the Bangalore Development Authority to  pay Rs 2446 to the consumer for the expenses  incurred by him in getting the lease-cum-sale  agreement registered as it was additional  expenditure for alternative site allotted to  

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him. No misfeasance was found. The moment the  authority came to know of the mistake committed  by it, it took immediate action by alloting  alternative site to the respondent. It was  compensation for exact loss suffered by the  respondent. It arose in due discharge of duties.  For such acts or omissions the loss suffered has  to be made good by the authority itself. But  when the sufferance is due to mala fide or  oppressive or capricious acts etc. of a public  servant, then the nature of liability changes.  The Commission under the Act could determine  such amount if in its opinion the consumer  suffered injury due to what is called  misfeasance of the officers by the English  Courts. Even in England where award of exemplary  or aggravated damages for insult etc. to a  person has now been held to be punitive,  exception has been carved out if the injury is  due to, ‘oppressive, arbitrary or  unconstitutional action by servants of the  Government’  (Salmond and Heuston on the Law of  Torts). Misfeasance in public office is  explained by Wade in his book on Administrative  Law thus:  

“Even where there is no ministerial duty as  above, and even where no recognised tort  such as trespass, nuisance, or negligence  is committed, public authorities or  officers may be liable in damages for  malicious, deliberate or injurious wrong- doing. There is thus a tort which has been  called misfeasance in public office, and  which includes malicious abuse of power,  deliberate maladministration, and perhaps  also other unlawful acts causing injury.”  (p. 777)

The jurisdiction and power of the courts to  indemnify a citizen for injury suffered due to  abuse of power by public authorities is founded  as observed by Lord Hailsham in Cassell & Co.  Ltd. v. Broome, 1972 AC 1027, on the principle  that, ‘an award of exemplary damages can serve a  

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useful purpose in vindicating the strength of  law’. An ordinary citizen or a common man is  hardly equipped to match the might of the State  or its instrumentalities. That is provided by  the rule of law. It acts as a check on arbitrary  and capricious exercise of power. In Rookes v.  Barnard, 1964 AC 1129, it was observed by Lord  Devlin, ‘the servants of the government are also  the servants of the people and the use of their  power must always be subordinate to their duty  of service’. A public functionary if he acts  maliciously or oppressively and the exercise of  power results in harassment and agony then it is  not an exercise of power but its abuse. No law  provides protection against it. He who is  responsible for it must suffer it. Compensation  or damage as explained earlier may arise even  when the officer discharges his duty honestly  and bona fide. But     when     it     arises     due     to    arbitrary     or     capricious     behaviour     then     it     loses    its     individual     character     and     assumes     social    significance.     Harassment     of     a     common     man     by    public     authorities     is     socially     abhorring     and    legally     impermissible.     It     may     harm     him    personally     but     the     injury     to     society     is     far     more    grievous. Crime and corruption thrive and  prosper in the society due to lack of public  resistance. Nothing is more damaging than the  feeling of helplessness. An ordinary citizen  instead of complaining and fighting succumbs to  the pressure of undesirable functioning in  offices instead of standing against it.  Therefore the award of compensation for  harassment by public authorities not only  compensates the individual, satisfies him  personally but helps in curing social evil. It  may result in improving the work culture and  help in changing the outlook. Wade in his book  Administrative Law has observed that it is to  the credit of public authorities that there are  simply few reported English decisions on this  form of malpractice, namely, misfeasance in  public offices which includes malicious use of  power, deliberate maladministration and perhaps  also other unlawful acts causing injury. One     of    

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the     reasons     for     this     appears     to     be     development    of     law     which,     apart,     from     other     factors    succeeded     in     keeping     a     salutary     check     on     the    functioning     in     the     government     or     semi-government    offices     by     holding     the     officers     personally    responsible     for     their     capricious     or     even     ultra    vires     action     resulting     in     injury     or     loss     to     a    citizen     by     awarding     damages     against     them  .  Various decisions rendered from time to time  have been referred to by Wade on Misfeasance by  Public Authorities. We shall refer to some of  them to demonstrate how necessary it is for our  society. In Ashby v. White, (1703) 2 LD Raym  938, the House of Lords invoked the principle of  ubi jus ibi remedium in favour of an elector who  was wrongfully prevented from voting and decreed  the claim of damages. The ratio of this decision  has been applied and extended by English Courts  in various situations.  

11. Today the issue thus is not only of  award of compensation but who should bear the  brunt. The     concept     of     authority     and     power    exercised     by     public     functionaries     has     many    dimensions.     It     has     undergone     tremendous     change    with     passage     of     time     and     change     in     socio-   economic     outlook.     The     authority     empowered     to    function     under     a     statute     while     exercising     power    discharges     public     duty.     It     has     to     act     to    subserve     general     welfare     and     common     good.     In    discharging     this     duty     honestly     and     bona     fide,    loss     may     accrue     to     any     person.     And     he     may     claim    compensation     which     may     in     circumstances     be    payable.     But     where     the     duty     is     performed    capriciously     or     the     exercise     of     power     results     in    harassment     and     agony     then     the     responsibility     to    pay     the     loss     determined     should     be     whose?     In     a    modern     society     no     authority     can     arrogate     to    itself     the     power     to     act     in     a     manner     which     is    arbitrary.     It     is     unfortunate     that     matters     which    require     immediate     attention     linger     on     and     the    man     in     the     street     is     made     to     run     from     one     end     to    other     with     no     result.     The     culture     of     window    clearance     appears     to     be     totally     dead.     Even     in    ordinary     matters     a     common     man     who     has     neither    

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the     political     backing     nor     the     financial     strength    to     match     the     inaction     in     public     oriented    departments     gets     frustrated     and     it     erodes     the    credibility     in     the     system.     Public    administration,     no     doubt     involves     a     vast     amount    of     administrative     discretion     which     shields     the    action     of     administrative     authority.     But     where     it    is     found     that     exercise     of     discretion     was     mala    fide     and     the     complainant     is     entitled     to    compensation     for     mental     and     physical     harassment    then     the     officer     can     no     more     claim     to     be     under    protective     cover  . When a citizen seeks to  recover compensation from a public authority in  respect of injuries suffered by him for  capricious exercise of power and the National  Commission finds it duly proved then it has a  statutory obligation to award the same. It was  never more necessary than today when even social  obligations are regulated by grant of statutory  powers. The     test     of     permissive     form     of     grant     is    over.     It     is     now     imperative     and     implicit     in     the    exercise     of     power     that     it     should     be     for     the     sake    of     society.     When     the     court     directs     payment     of    damages     or     compensation     against     the     State     the    ultimate     sufferer     is     the     common     man.     It     is     the    tax     payers'     money     which     is     paid     for     inaction     of    those     who     are     entrusted     under     the     Act     to    discharge     their     duties     in     accordance     with     law  .  It is, therefore, necessary that the Commission  when it is satisfied that a complainant is  entitled to compensation for harassment or  mental agony or oppression, which finding of  course should be recorded carefully on material  and convincing circumstances and not lightly,  then it should further direct the department  concerned to pay the amount to the complainant  from the public fund immediately but to recover  the same from those who are found responsible  for such unpardonable behaviour by dividing it  proportionately where there are more than one  functionaries.”

(emphasis is mine)

The judgment brings out the foundational principle of  

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executive governance.  The said foundational principle  

is based on the realization that sovereignty vests in  

the people.  The judgment therefore records that every  

limb of the constitutional machinery is obliged to be  

people oriented.  The fundamental principle brought out  

by the judgment is, that a public authority exercising  

public power discharges a public duty, and therefore,  

has to subserve general welfare and common good.  All  

power should be exercised for the sake of society.  The  

issue which was the subject matter of consideration,  

and has been noticed along with the citation, was  

decided by concluding that compensation shall be  

payable by the State (or its instrumentality) where  

inappropriate deprivation on account of improper  

exercise of discretion has resulted in a loss,  

compensation is payable by the State (or its  

instrumentality).  But where the public functionary  

exercises his discretion capriciously, or for  

considerations which are malafide, the public  

functionary himself must shoulder the burden of  

compensation held as payable.  The reason for shifting  

the onus to the public functionary deserves notice.  

This Court felt, that when a court directs payment of  

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damages or compensation against the State, the ultimate  

sufferer is the common man, because it is tax payers  

money out of which damages and costs are paid.

(i) Next cited for our consideration was the  

judgment in Common Cause, A Registered Society Vs.  

Union of India & Ors., (1996) 6 SCC 530.  The instant  

case dealt with a challenge to the allotment of retail  

outlets for petroleum products (petrol pumps).  

Allotment was made in favour of 15 persons on the  

ground of poverty or unemployment.  Rest of the  

relevant facts emerge from the extracts from the  

judgment reproduced below:

“24. The orders of the Minister reproduced  above read: “the applicant has no regular income  to support herself and her family”, “the  applicant is an educated lady and belongs to  Scheduled Tribe community”, “the applicant is  unemployed and has no regular source of income”,  “the applicant is an uneducated, unemployed  Scheduled Tribe youth without regular source of  livelihood”, “the applicant is a housewife whose  family is facing difficult financial  circumstances”  etc. etc. There would be  literally millions of people in the country  having these circumstances or worse. There is no  justification whatsoever to pick up these  persons except that they happen to have won the  favour of the Minister on mala fide  considerations. None of these cases fall within  the categories placed before this Court in  Centre for Public Interest Litigation v. Union  of India, 1995 Supp. (3) SCC 382, but even if we  assume for argument sake that these cases fall  

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in some of those or similar guidelines the  exercise of discretion was wholly arbitrary.  Such     a     discretionary     power     which     is     capable     of    being     exercised     arbitrarily     is     not     permitted     by    Article     14     of     the     Constitution     of     India.     While    Article     14     permits     a     reasonable     classification    having     a     rational     nexus     to     the     objective     sought    to     be     achieved,     it     does     not     permit     the     power     to    pick     and     choose     arbitrarily     out     of     several    persons     falling     in     the     same     category.     A    transparent     and     objective     criteria/procedure     has    to     be     evolved     so     that     the     choice     among     the    members     belonging     to     the     same     class     or     category    is     based     on     reason,     fair     play     and     non-   arbitrariness.     It     is     essential     to     lay     down     as     a    matter     of     policy     as     to     how     preferences     would     be    assigned     between     two     persons     falling     in     the     same    category.     If     there     are     two     eminent     sportsmen     in    distress     and     only     one     petrol     pump     is     available,    there     should     be     clear,     transparent     and     objective    criteria/procedure     to     indicate     who     out     of     the    two     is     to     be     preferred.     Lack     of     transparency     in    the     system     promotes     nepotism     and     arbitrariness  .  It is absolutely essential that the entire  system should be transparent right from the  stage of calling for the applications up to the  stage of passing the orders of allotment. The  names     of     the     allottees,     the     orders     and     the    reasons     for     allotment     should     be     available     for    public     knowledge     and     scrutiny  . Mr Shanti Bhushan  has suggested that the petrol pumps, agencies  etc. may be allotted by public auction —  category wise amongst the eligible and  objectively selected applicants. We     do     not     wish    to     impose     any     procedure     on     the     Government.     It     is    a     matter     of     policy     for     the     Government     to     lay    down.     We,     however,     direct     that     any     procedure    laid     down     by     the     Government     must     be     transparent,    just,     fair     and     non-arbitrary  . ….. …..

26. With     the     change     in     socio-economic    outlook,     the     public     servants     are     being     entrusted    with     more     and     more     discretionary     powers     even     in    the     field     of     distribution     of     government     wealth    

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in     various     forms  . We take it to be perfectly  clear, that if a public servant abuses his  office either by an act of omission or  commission, and the consequence of that is  injury to an individual or loss of public  property, an action may be maintained against  such public servant. No public servant can say  “you may set aside an order on the ground of  mala fide but you cannot hold me personally  liable”. No     public     servant     can     arrogate     to    himself     the     power     to     act     in     a     manner     which     is    arbitrary.”

(emphasis is mine)

This judgment has a direct bearing on the controversy  

in hand.  It clearly delineates the manner in which  

discretion must be exercised, specially when the object  

of discretion is State largesse.  A perusal of the  

observations reproduced above reveal, that the State  

largesse under reference (petrol pumps) were to be  

allotted on the ground of poverty and unemployment.  

Such an allotment was obviously based on a policy to  

“best subserve the common good”  enshrined in Article  

39(b) of the Constitution of India.  This Court found  

no fault in the policy itself.  The fault was with the  

manner of giving effect to the policy.  It was held,  

that a transparent and objective criteria/procedure has  

to be evolved, so that the choice out of those who are  

eligible can be made fairly and without any  

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arbitrariness.  The exercise of discretion which  

enables the competent authority to arbitrarily pick and  

choose out of several persons falling in the same  

category, according to the above decision would be  

arbitrary, and as such violative of Article 14 of the  

Constitution of India.

(j) Out of the more recent judgments our attention  

was invited to Meerut Development Authority Vs.  

Association of Management Studies & Anr. etc., (2009) 6  

SCC 171.  The controversy adjudicated upon in this case  

emerges from the decision of the appellant to allotment  

of 2 plots of land.  For the said purpose the appellant  

invited tenders from interested persons.  In response  

the respondent submitted its tender.  After the  

allotment of one of the plots to the respondent, the  

respondent raised an objection that the appellant had  

fixed the reserved price of the second plot at a rate  

much higher than its adjoining plots.  The respondent  

assailed the action of the appellant in issuing a fresh  

advertisement for the allotment of the second plot.  In  

the course of determination of the aforesaid  

controversy this Court held:

“26. A tender is an offer. It is something  

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which invites and is communicated to notify  acceptance. Broadly stated it must be  unconditional; must be in the proper form, the  person by whom tender is made must be able to  and willing to perform his obligations. The  terms of the invitation to tender cannot be open  to judicial scrutiny because the invitation to  tender is in the realm of contract. However, a  limited judicial review may be available in  cases where it is established that the terms of  the invitation to tender were so tailor-made to  suit the convenience of any particular person  with a view to eliminate all others from  participating in the bidding process.   

27. The     bidders     participating     in     the    tender     process     have     no     other     right     except     the    right     to     equality     and     fair     treatment     in     the    matter     of     evaluation     of     competitive     bids     offered    by     interested     persons     in     response     to     notice    inviting     tenders     in     a     transparent     manner     and    free     from     hidden     agenda  . One cannot challenge  the terms and conditions of the tender except on  the abovestated ground, the reason being the  terms of the invitation to tender are in the  realm of the contract. No bidder is entitled as  a matter of right to insist the authority  inviting tenders to enter into further  negotiations unless the terms and conditions of  notice so provided for such negotiations.   

28. It     is     so     well     settled     in     law     and     needs    no     restatement     at     our     hands     that     disposal     of     the    public     property     by     the     State     or     its    instrumentalities     partakes     the     character     of     a    trust.     The     methods     to     be     adopted     for     disposal     of    public     property     must     be     fair     and     transparent    providing     an     opportunity     to     all     the     interested    persons     to     participate     in     the     process  .   

29. The Authority has the right not to  accept the highest bid and even to prefer a  tender other than the highest bidder, if there  exist good and sufficient reasons, such as, the  

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highest bid not representing the market price  but there cannot be any doubt that the  Authority's action in accepting or refusing the  bid must be free from arbitrariness or  favouritism.   ….. …..

39. The law has been succinctly stated by  Wade in his treatise, Administrative Law:

“The     powers     of     public     authorities     are     therefore    essentially     different     from     those     of     private    persons.     A     man     making     his     will     may,     subject     to    any     rights     of     his     dependants,     dispose     of     his    property     just     as     he     may     wish.     He     may     act     out     of    malice     or     a     spirit     of     revenge,     but     in     law     this    does     not     affect     his     exercise     of     his     power.     In    the     same     way     a     private     person     has     an     absolute    power     to     allow     whom     he     likes     to     use     his     land,     to    release     a     debtor,     or,     where     the     law     permits,     to    evict     a     tenant,     regardless     of     his     motives.     This    is     unfettered     discretion.     But     a     public     authority    may     do     none     of     these     things     unless     it     acts    reasonably     and     in     good     faith     and     upon     lawful     and    relevant     grounds     of     public     interest  . So a city  council acted unlawfully when it refused  unreasonably to let a local rugby football club  use the city's sports ground, though a private  owner could of course have refused with  impunity. Nor     may     a     local     authority     arbitrarily    release     debtors,     and     if     it     evicts     tenants,     even    though     in     accordance     with     a     contract,     it     must    act     reasonably     and   ‘  within     the     limits     of     fair    dealing  ’  .     The     whole     conception     of     unfettered    discretion     is     inappropriate     to     a     public    authority,     which     possesses     powers     solely     in    order     that     it     may     use     them     for     the     public    

good.”, Administrative Law, 9th Edn. H.W.R. Wade  

and C.F. Forsyth.   

40. There is no difficulty to hold that  the authorities owe a duty to act fairly but it  is equally well settled in judicial review, the  court is not concerned with the merits or  

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correctness of the decision, but with the manner  in which the decision is taken or the order is  made. The court cannot substitute its own  opinion for the opinion of the authority  deciding the matter.   

41. The distinction between appellate  power and a judicial review is well known but  needs reiteration. By way of judicial review,  the court cannot examine the details of the  terms of the contract which have been entered  into by the public bodies or the State. The  courts have inherent limitations on the scope of  any such enquiry. If     the     contract     has     been    entered     into     without     ignoring     the     procedure    which     can     be     said     to     be     basic     in     nature     and    after     an     objective     consideration     of     different    options     available     taking     into     account     the    interest     of     the     State     and     the     public,     then     the    court     cannot     act     as     an     appellate     court     by    substituting     its     opinion     in     respect     of     selection    made     for     entering     into     such     contract.     But     at     the    same     time     the     courts     can     certainly     examine    whether     the   “  decision-making     process  ”    was    reasonable,     rational,     not     arbitrary     and    violative     of     Article     14  . (See Sterling Computers  Ltd. Vs. M&N Publications Ltd., (1993) 1 SCC  445).   

….. …..

50. We are, however, of the opinion that  the effort, if any, made by MDA to augment its  financial resources and revenue itself cannot be  said to be an unreasonable decision. It     is     well    said     that     the     struggle     to     get     for     the     State     the    full     value     of     its     resources     is     particularly    pronounced     in     the     sale     of     State-owned     natural    assets     to     the     private     sector.     Whenever     the    Government     or     the     authorities     get     less     than     the    full     value     of     the     asset,     the     country     is     being    cheated;     there     is     a     simple     transfer     of     wealth    from     the     citizens     as     a     whole     to     whoever     gets     the    assets   “  at     a     discount  ”  . Most of the times the  wealth of the State goes to the individuals  

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within the country rather than to multinational  corporations; still, wealth slips away that  ought to belong to the nation as a whole.

(emphasis is mine)

In the instant judgment this Court laid down, that in a  

tender process, a tenderer has the right to fair  

treatment and the right to be treated equally.  The  

evaluation of tenders, it has been held, must be  

transparent and free from any hidden agenda.  The view  

expressed in Wades Tretise on Administrative Law, that  

public authorities cannot act in a manner which is open  

to private persons, was accepted.  Public authorities,  

it was held, can neither act out of malice nor a spirit  

of revenge.  A public authority is ordained to act,  

reasonably and in good faith and upon lawful and  

relevant grounds of public interest.  Most importantly  

it was concluded, that the State “must” get the “full  

value”  of the resources, specially when State owned  

assets are passed over to private individuals/entities.  

Not stopping there the Court added further, that  

whoever pays less than the full value, get the assets  

belonging to the citizens “at a discount”, and as such  

the wealth that belongs to the nation slips away.

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(k) Also cited for our consideration was the  

judgment in Reliance Natural Resources Ltd. Vs.  

Reliance Industries Ltd. etc., (2010) 7 SCC 1.  The  

Court’s attention was invited to the following:

“33. Mr R.F. Nariman, learned Senior Counsel  appearing for RIL concentrated his argument with  reference to Sections 391 to 394 of the Companies  Act. According to him, Section 392 of the Act had  no predecessors either in English law or in the  Companies Act of 1913. The reason why the  legislature appears to have felt the necessity of  enacting Section 392 is to bring Section 391 on a  par with Section 394. Section 394 applies only to  companies which are reconstructing and or  amalgamating, involving the transfer of assets and  liabilities to another company. It is thus,  applicable to a species of the genus of company  referred to under Section 391. Section 394, sub- section 1 specifically gives the Company Court the  power not merely to sanction the compromise or  arrangement but also gives the Company Court the  power, by a subsequent order, to make provisions  for “such incidental, consequential and  supplemental matters as are necessary to secure  that the reconstruction or amalgamation shall be  fully and effectively carried out” [Section 394(1) (vi)]. This power is absent in Section 391, so  that companies falling within Section 391, but not  within Section 394, would not be amenable to the  Company Court's jurisdiction to enforce a  compromise or arrangement made under Section 391  and to see that they are fully carried out. Hence,  the power under Section 392 has to be understood  in the above context, and is of the same quality  as the power expressly given to the Company Court  post-sanction under Section 394.   ….. …..

122. From the above analysis, the following  are the broad sustainable conclusions which can be  

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derived from the position of the Union:

(1) The     natural     resources     are     vested     with     the    Government     as     a     matter     of     trust     in     the     name     of    the     people     of     India.     Thus,     it     is     the     solemn    duty     of     the     State     to     protect     the     national    interest.

(2) Even though exploration, extraction and  exploitation of natural resources are within  the domain of governmental function, the  Government has decided to privatise some of  its functions. For this reason, the  constitutional restrictions on the Government  would equally apply to the private players in  this process. Natural     resources     must     always     be    used     in     the     interests     of     the     country,     and     not    private     interests  .

(3) The broader constitutional principles, the  statutory scheme as well as the proper  interpretation of the PSC mandates the  Government to determine the price of the gas  before it is supplied by the contractor.

(4) The policy of the Government, including the  gas utilisation policy and the decision of  EGOM would be applicable to the pricing in the  present case.

(5) The     Government     cannot     be     divested     of     its    supervisory     powers     to     regulate     the     supply     and    distribution     of     gas  .   

….. …..

128. In     a     constitutional     democracy     like     ours,    the     national     assets     belong     to     the     people.     The    Government     holds     such     natural     resources     in     trust.    Legally,     therefore,     the     Government     owns     such    assets     for     the     purposes     of     developing     them     in     the    interests     of     the     people  . In the present case, the  Government owns the gas till it reaches its  ultimate consumer. A mechanism is provided under  the PSC between the Government and the contractor  (RIL, in the present case). The PSC shall override  any other contractual obligation between the  contractor and any other party.   ….. …..

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243. The structure of our Constitution is not  such that it permits the reading of each of the  Directive Principles of State Policy, that have  been framed for the achievement of conditions of  social, economic and political justice in  isolation. The structural lines of logic, of  ethical imperatives of the State and the lessons  of history flow from one to the other. In     the    quest     for     national     development     and     unity     of     the    nation,     it     was     felt     that     the   “  ownership     and    control     of     the     material     resources     of     the    community  ”    if     distributed     in     a     manner     that     does    not     result     in     common     good,     it     would     lead     to    derogation     from     the     quest     for     national     development    and     the     unity     of     the     nation  . Consequently, Article  39(b) of the Constitution should be construed in  light of Article 38 of the Constitution and be  understood as placing an affirmative obligation  upon the State to ensure that distribution of  material resources of the community does not  result in heightening of inequalities amongst  people and amongst regions. In line with the logic  of the constitutional matrix just enunciated, and  in the sweep of the quest for national development  and unity, is another provision. Inasmuch as  inequalities between people and regions of the  nation are inimical to those goals, Article 39(c)  posits that the “operation of the economic system”  when left unattended and unregulated, leads to  “concentration of wealth and means of production  to the common detriment” and commands the State to  ensure that the same does not occur.   ….. …..

250 We hold that with respect to the natural  resources extracted and exploited from the  geographic zones specified in Article 297 the  Union may not: (1) transfer title of those resources after their  

extraction unless the Union receives just and  proper compensation for the same;

(2) allow a situation to develop wherein the  various users in different sectors could  

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potentially be deprived of access to such  resources;

(3) allow the extraction of such resources without  a clear policy statement of conservation,  which takes into account total domestic  availability, the requisite balancing of  current needs with those of future  generations, and also India's security  requirements;

(4) allow the extraction and distribution without  periodic evaluation of the current  distribution and making an assessment of how  greater equity can be achieved, as between  sectors and also between regions;

(5) allow a contractor or any other agency to  extract and distribute the resources without  the explicit permission of the Union of India,  which permission can be granted only pursuant  to a rationally framed utilisation policy; and

(6) no end user may be given any guarantee for  continued access and of use beyond a period to  be specified by the Government.

Any     contract     including     a     PSC     which     does     not     take    into     its     ambit     stated     principles     may     itself     become    vulnerable     and     fall     foul     of     Article     14     of     the    Constitution.

(emphasis is mine)

Interestingly, in this case the position adopted by the  

Union needs to be highlighted.  This Court was  

informed, that natural resources are vested in the  

Government, as a matter of trust, in the name of the  

people of India.  And that, it was the solemn duty of  

the State to protect the national interest.  The most  

significant assertion expressed on behalf of the Union  

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was, that natural resources must always be used in the  

interest of the country and not in private interest.  

It is in the background of the stance adopted by the  

Union, that this Court issued the necessary directions  

extracted above.

(l) Last of all reference was made to the decision  

of this Court in Akhil Bhartiya Upbhokta Congress Vs.  

State of Madhya Pradesh & Ors., (2011) 5 SCC 29:

65. What     needs     to     be     emphasised     is     that     the    State     and/or     its     agencies/instrumentalities    cannot     give     largesse     to     any     person     according     to    the     sweet     will     and     whims     of     the     political    entities     and/or     officers     of     the     State.     Every    action/decision     of     the     State     and/or     its    agencies/instrumentalities     to     give     largesse     or    confer     benefit     must     be     founded     on     a     sound,    transparent,     discernible     and     well-defined    policy,     which     shall     be     made     known     to     the     public    by     publication     in     the     Official     Gazette     and     other    recognised     modes     of     publicity     and     such     policy    must     be     implemented/executed     by     adopting     a     non-   discriminatory     and     non-arbitrary     method    irrespective     of     the     class     or     category     of     persons    proposed     to     be     benefited     by     the     policy.     The    distribution     of     largesse     like     allotment     of     land,    grant     of     quota,     permit     licence,     etc.     by     the    State     and     its     agencies/instrumentalities     should    always     be     done     in     a     fair     and     equitable     manner    and     the     element     of     favouritism     or     nepotism     shall    not     influence     the     exercise     of     discretion,     if    any,     conferred     upon     the     particular     functionary    or     officer     of     the     State  .

66. We     may     add     that     there     cannot     be     any    policy,     much     less,     a     rational     policy     of    allotting     land     on     the     basis     of     applications     made    

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by     individuals,     bodies,     organisations     or    institutions     dehors     an     invitation     or    advertisement     by     the     State     or     its    agency/instrumentality.     By     entertaining    applications     made     by     individuals,     organisations    or     institutions     for     allotment     of     land     or     for    grant     of     any     other     type     of     largesse     the     State    cannot     exclude     other     eligible     persons     from    lodging     competing     claim.     Any     allotment     of     land    or     grant     of     other     form     of     largesse     by     the     State    or     its     agencies/instrumentalities     by     treating    the     exercise     as     a     private     venture     is     liable     to    be     treated     as     arbitrary,     discriminatory     and     an    act     of     favouritism     and/or     nepotism     violating     the    soul     of     the     equality     clause     embodied     in     Article    14     of     the     Constitution  .

67. This,     however,     does     not     mean     that     the    State     can     never     allot     land     to     the    institutions/organisations     engaged     in    educational,     cultural,     social     or     philanthropic    activities     or     are     rendering     service     to     the    society     except     by     way     of     auction.     Nevertheless,    it     is     necessary     to     observe     that     once     a     piece     of    land     is     earmarked     or     identified     for     allotment     to    institutions/organisations     engaged     in     any     such    activity,     the     actual     exercise     of     allotment     must    be     done     in     a     manner     consistent     with     the     doctrine    of     equality.     The     competent     authority     should,     as    a     matter     of     course,     issue     an     advertisement    incorporating     therein     the     conditions     of    eligibility     so     as     to     enable     all     similarly    situated     eligible     persons,    institutions/organisations     to     participate     in     the    process     of     allotment,     whether     by     way     of     auction    or     otherwise.     In     a     given     case     the     Government     may    allot     land     at     a     fixed     price     but     in     that     case    also     allotment     must     be     preceded     by     a     wholesome    exercise     consistent     with     Article     14     of     the    Constitution.”

(emphasis is mine)

The observations of this Court in the judgment  

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extracted above neither need any summarization, nor any  

further elaboration.

(m) Surely, there cannot be any escape from a  

reference to the judgment rendered by this Court in  

Centre for Public Interest Litigation and others v.  

Union of India & Ors., (2012) 3 SCC 1, which according  

to the preamble of the Presidential reference, seems to  

be the reason why the reference came to be made.  

During the course of hearing extensive debate, between  

rival parties, ensued on the effect of the observations  

recorded by this Court in paragraphs 95 and 96 of the  

judgment.  The aforesaid paragraphs are being extracted  

hereinbelow:

“95. This Court has repeatedly held that  wherever a contract is to be awarded or a  licence is to be given, the public authority  must adopt a transparent and fair method for  making selections so that all eligible persons  get a fair opportunity of competition. To put it  differently, the State and its  agencies/instrumentalities must always adopt a  rational method for disposal of public property  and no attempt should be made to scuttle the  claim of worthy applicants. When it comes to  alienation of scarce natural resources like  spectrum etc., it is the burden of the State to  ensure that a non-discriminatory method is  adopted for distribution and alienation, which  would necessarily result in protection of  national/public interest.

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96. In our view, a duly publicized auction  conducted fairly and impartially is perhaps the  best method for discharging this burden and the  methods like first-come-first-served when used  for alienation of natural resources/public  property are likely to be misused by  unscrupulous people who are only interested in  garnering maximum financial benefit and have no  respect for the constitutional ethos and values.  In other words, while transferring or alienating  the natural resources, the State is duty bound  to adopt the method of auction by giving wide  publicity so that all eligible persons can  participate in the process.”

In so far as the controversy in the aforesaid case is  

concerned, it would be relevant to mention that the  

petitioner approached this Court by invoking the  

extraordinary writ jurisdiction of this Hon’ble Court  

under Article 32 of the Constitution of India.  The  

petition came to be filed as a cause in public  

interest.  The reason which promoted the petitioner to  

approach this Court was that the Union had adopted the  

policy of “first come first serve”  for allocation of  

licences of spectrum.  It was alleged that the  

aforesaid policy involved the element of pure chance or  

accident.  It was asserted on behalf of the petitioners  

that invocation of the principles of “first come first  

serve”  for permission to use natural resources had  

inherently dangerous implications.  The implications  

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expressed by the petitioners were duly taken into  

consideration and the plea raised on behalf of the  

petitioners was accepted.  Thereupon, the following  

directions came to be issued in paragraph 102 of the  

judgment:

“102.  In the result, the writ petitions are allowed  in the following terms:

(i) The licences granted to the private  Respondents on or after 10.1.2008 pursuant to  two press releases issued on 10.1.2008 and  subsequent allocation of spectrum to the  licensees are declared illegal and are  quashed.

(ii) The above direction shall become operative  after four months.

(iii) Keeping in view the decision taken by the  Central Government in 2011, TRAI shall make  fresh recommendations for grant of licence and  allocation of spectrum in 2G band in 22  Service Areas by auction, as was done for  allocation of spectrum in 3G band.

(iv) The Central Government shall consider the  recommendations of TRAI and take appropriate  decision within next one month and fresh  licences be granted by auction.

(v) Respondent Nos. 2, 3 and 9 who have been  benefited at the cost of Public Exchequer by a  wholly arbitrary and unconstitutional action  taken by the DoT for grant of UAS Licences and  allocation of spectrum in 2G band and who off- loaded their stakes for many thousand crores  in the name of fresh infusion of equity or  transfer of equity shall pay cost of Rs. 5  crores each. Respondent Nos. 4, 6, 7 and 10  shall pay cost of Rs. 50 lakhs each because  

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they too had been benefited by the wholly  arbitrary and unconstitutional exercise  undertaken by the DoT for grant of UAS  Licences and allocation of spectrum in 2G  band. We have not imposed cost on the  Respondents who had submitted their  applications in 2004 and 2006 and whose  applications were kept pending till 2007.

(vi) Within four months, 50% of the cost shall  be deposited with the Supreme Court Legal  Services Committee for being used for  providing legal aid to poor and indigent  litigants. The remaining 50% cost shall be  deposited in the funds created for  Resettlement and Welfare Schemes of the  Ministry of Defence.

(vii) However, it is made clear that the  observations made in this judgment shall not,  in any manner, affect the pending  investigation by the CBI, Directorate of  Enforcement and Ors. agencies or cause  prejudice to those who are facing prosecution  in the cases registered by the CBI or who may  face prosecution on the basis of  chargesheet(s) which may be filed by the CBI  in future and the Special Judge, CBI shall  decide the matter uninfluenced by this  judgment. We also make it clear that this  judgment shall not prejudice any person in the  action which may be taken by other  investigating agencies under Income Tax Act,  1961, Prevention of Money Laundering Act, 2002  and other similar statutes.”

It needs to be noticed that a review petition came to  

be filed by the Union against the instant judgment.  

The same, however, came to be withdrawn without any  

reservations.  During the course of hearing of the  

instant petition, the Learned Attorney General for  

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India informed this Court that the Union had decided to  

give effect to the judgment, in so far as the  

allocation of spectrum is concerned.  In the above view  

of the matter, one only needs to notice the  

observations recorded by this Court in paragraphs 95  

and 96 extracted hereinabove.  A perusal of the  

aforesaid paragraphs reveals, that in line with the  

judgments rendered by this Court interpreting Article  

14 of the Constitution of India, this Court yet again  

held, that while awarding a contact or a licence, the  

executive must adopt a transparent and fair method.  

The executive must ensure, that all eligible persons  

get a fair opportunity to compete.  For awarding  

contracts or licences, the executive should adopt a  

rational method, so as to ensure that claims of worthy  

applicants are not scuttled. On the subject of natural  

resources like spectrum, etc., this Court held that it  

was the bounden duty of the State to ensure the  

adoption of a non-discriminatory method which would  

result in protection of national/public interest.  This  

Court also expressed the view that “perhaps” the best  

method for doing so would be through a duly publicized  

auction conducted fairly and impartially.  Thus viewed,  

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it was affirmed, that the State was duty bound to adopt  

the method of auction by giving wide publication while  

alienating natural resources, so as to ensure that all  

eligible persons can participate in the process.

7. The parameters laid by this Court on the scope  

of applicability of Article 14 of the Constitution of  

India, in matters where the State, its  

instrumentalities, and their functionaries, are engaged  

in contractual obligations (as they emerge from the  

judgments extracted in paragraph 6 above) are being  

briefly paraphrased.  For an action to be able to  

withstand the test of Article 14 of the Constitution of  

India, it has already been expressed in the “main  

opinion”  that it has to be fair, reasonable, non-

discriminatory, transparent, non-capricious, unbiased,  

without favouritism or nepotism, in pursuit of  

promotion of healthy competition and equitable  

treatment.  The judgments referred to, endorse all  

those requirements where the State, its  

instrumentalities, and their functionaries, are engaged  

in contractual transactions.  Therefore, all  

“governmental policy”  drawn with reference to  

contractual matters, it has been held, must conform to  

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the aforesaid parameters.  While Article 14 of the  

Constitution of India permits a reasonable  

classification having a rational nexus to the object  

sought to be achieved, it does not permit the power of  

pick and choose arbitrarily out of several persons  

falling in the same category.  Therefore, a criteria or  

procedure has to be adopted so that the choice among  

those falling in the same category is based on reason,  

fair play and non-arbitrariness.  Even if there are  

only two contenders falling in the zone of  

consideration, there should be a clear, transparent and  

objective criteria or procedure to indicate which out  

of the two is to be preferred.  It is this, which would  

ensure transparency.

8. Another aspect which emerges from the judgments  

(extracted in paragraph 6 above) is that, the State,  

its instrumentalities and their functionaries, while  

exercising their executive power in matters of trade or  

business etc. including making of contracts, should be  

mindful of public interest, public purpose and public  

good.  This is so, because every holder of public  

office by virtue of which he acts on behalf of the  

State, or its instrumentalities, is ultimately  

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accountable to the people in whom sovereignty vests.  

As such, all powers vested in the State are meant to be  

exercised for public good and in public interest.  

Therefore, the question of unfettered discretion in an  

executive authority, just does not arise.  The fetters  

on discretion are - a clear, transparent and objective  

criteria or procedure which promotes public interest,  

public purpose and public good.  A public authority is  

ordained, therefore to act, reasonably and in good  

faith and upon lawful and relevant grounds of public  

interest.

9. Observations recorded by this Court on the  

subject of revenue returns, during the course of the  

States engagements in commercial ventures (emerging  

from the judgments extracted in paragraph 6 above), are  

being summarized hereunder.  It has been held, where  

the Sate is simply selling a product, there can be no  

doubt that the State must endeavour to obtain the  

highest price, subject of course to any other  

overriding public consideration.  The validity of a  

trading agreement executed by the Government has to be  

judged by the test, that the entire benefit arising  

therefrom enures to the State, and is not used as a  

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cloak for conferring private benefits on a limited  

class of persons.  If a contract has been entered into,  

taking in account the interest of the State and the  

public, the same would not be interfered with by a  

Court, by assuming the position of an appellate  

authority.  The endeavour to get the State the “full  

value”  of its resources, it has been held, is  

particularly pronounced in the sale of State owned  

natural resources, to the private sector.  Whenever the  

State gets less than the full value of the assets, it  

has been inferred, that the country has been cheated,  

in a much as, it amounts to a simple transfer of  

wealth, from the citizens as a whole, to whoever gets  

the assets at a discount.  And in that sense, it has  

been concluded, the wealth that belongs to the nation  

is lost.  In Reliance Natural Resources Ltd.’s case  

(supra), the Union of India adopted the position, that  

natural resources are vested in the State as a matter  

of trust, for and on behalf of the citizens of the  

country.  It was also acknowledged, that it was the  

solemn duty of the State, to protect those natural  

resources.  More importantly, it was accepted, that  

natural resources must always be used in the common  

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interest of the citizens of the country, and not for  

private interest.

10. Based on the legal/constitutional  

parameters/requirements culled out in the preceding  

three paragraphs, I shall venture an opinion on whether  

there are circumstances in which natural resources  

ought to be disposed of only by ensuring maximum  

returns.  For this, I shall place reliance on a  

conclusion drawn in the “main opinion”, namely,  

“Distribution of natural resources is a policy  

decision, and the means adopted for the same are thus,  

executive prerogatives.  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.”  

(refer to paragraph 149 of the “main opinion”).  I am  

in respectful agreement with the aforesaid conclusion,  

and would accordingly opine, that when natural  

resources are made available by the State to private  

persons for commercial exploitation exclusively for  

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their individual gains, the State’s endeavour must be  

towards maximization of revenue returns.  This alone  

would ensure, that the fundamental right enshrined in  

Article 14 of the Constitution of India (assuring  

equality before the law and equal protection of the  

laws), and the directive principle contained in Article  

39(b) of the Constitution of India (that material  

resources of the community are so distributed as best  

to subserve the common good), have been extended to the  

citizens of the country.

11. A similar conclusion would also emerge in a  

slightly different situation.  This Court in a case  

dealing with a challenge to the allotment of retail  

outlets for petroleum products [Common Cause, A  

Registered Society Vs. Union of India & Ors., (1996) 6  

SCC 530] has held, that Article 14 of the Constitution  

of India, does not countenance discretionary power  

which is capable of being exercised arbitrarily.  While  

accepting that Article 14 of the Constitution of India  

permits a reasonable classification having a rational  

nexus to the object sought to be achieved, it was held  

that Article 14 of the Constitution of India does not  

permit the State to pick and choose arbitrarily out of  

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several persons falling in the same category.  A  

transparent and objective criteria/procedure has to be  

evolved so that the choice amongst those belonging to  

the same class or category is based on reason, fair  

play, and non-arbitrariness.  Envisage a situation as  

the one expressed above, where by reasonable  

classification based on some public purpose, the choice  

is limited to a set of private persons, amongst whom  

alone, the State has decided to dispose of natural  

resources.  Herein again, in my opinion, if the  

participation of private persons is for commercial  

exploitation exclusively for their individual gains,  

then the State’s endeavour to maximize revenue alone,  

would satisfy the constitutional mandate contained in  

Articles 14 and 39(b) of the Constitution of India.

12. In the “main opinion”, it has been concluded,  

that auction is not a constitutional mandate, in the  

nature of an absolute principle which has to be applied  

in all situations.  And as such, auction cannot be read  

into Article 14 of the Constitution of India, so as to  

be applied in all situations (refer to paragraph 107 of  

the “main opinion”).  Auction is certainly not a  

constitutional mandate in the manner expressed, but it  

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can surely be applied in some situations to maximize  

revenue returns, to satisfy legal and constitutional  

requirements.  It is, therefore, that I have chosen to  

express the manner of disposal of natural resources by using  

the words “maximization of revenue”  in place of the term  

“auction”, in the foregoing two paragraphs.  But it may be  

pointed out, the Attorney General for India had acknowledged  

during the course of hearing, that auction by way of  

competitive bidding was certainly an indisputable means, by  

which maximization of revenue returns is assured (in this  

behalf other observations recorded by me in paragraph 3  

above may also be kept in mind).  In the aforesaid view of  

the matter, all that needs to be stated is, that if the  

State arrives at the conclusion, in a given situation,  

that maximum revenue would be earned by auction of the  

natural resource in question, then that alone would be  

the process which it would have to adopt, in the  

situations contemplated in the foregoing two  

paragraphs.

13. One is compelled to take judicial notice of the  

fact, that allotment of natural resources is an issue  

of extensive debate in the country, so much so, that  

the issue of allocation of such resources had recently  

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resulted in a washout of two sessions of Parliament.  

The current debate on allotment of material resources  

has been prompted by a report submitted by the  

Comptroller and Auditor General, asserting extensive  

loss in revenue based on inappropriate allocations.  

The report it is alleged, points out that private and  

public sector companies had made windfall gains because  

the process of competitive bidding had not been  

adopted. The country witnessed a similar political spat  

a little while earlier, based on the allocation of the  

2G spectrum.  On that occasion the controversy was  

brought to this Court by way of a public interest  

litigation, the judgment whereof is reported as Centre  

for Public Interest Litigation Vs. Union of India,  

(2012) 3 SCC 1.  Extensive revenue loss, in the course  

of allocation of the 2G spectrum was duly noticed.  On  

each occasion when the issue of allocation of natural  

resources, results in an alleged loss of revenue, it is  

portrayed as a loss to the nation.  The issue then  

becomes a subject matter of considerable debate at all  

levels of the Indian polity.  Loss of one, essentially  

entails a gain to the other.  On each such occasion  

loss to the nation, translates into the identification  

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of private players as the beneficiaries.  If one were  

to accept the allegations appearing in the media, on  

account of defects in the disposal mechanism, private  

parties have been beneficiaries to the tune of lakhs of  

crores of Indian Rupees, just for that reason.  In the  

current debate, rival political parties have made  

allegations against those responsible, which have been  

repudiated with counter allegations.  This Court is  

not, and should never be seen to be, a part of that  

debate.  But it does seem, that the Presidential  

reference is aimed at invoking this Court’s advisory  

jurisdiction to iron out the creases, so that legal and  

constitutional parameters are correctly understood.  

This would avoid such controversies in future.  It is  

therefore, that an opinion is also being rendered by  

me, on the fourth question, namely, “What is the  

permissible scope for interference by courts with  

policy making by the Government including methods for  

disposal of natural resources?”  On this the advice  

tendered in the “main opinion”  inter alia expresses,  

“We may, however, hasten to add that the Court can test  

the legality and constitutionality of these methods.  

When questioned, the Courts are entitled to analyse the  

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legal validity of different means of distribution and  

give a constitutional answer as to which methods are  

ultra vires and intra vires the provisions of the  

Constitution.  Nevertheless, it cannot and will not  

compare which policy is fairer than the other, but, if  

a policy or law is patently unfair to the extent that  

it falls fouls of the fairness requirement of Article  

14 of the Constitution, the Court would not hesitate in  

striking it down.”, (refer to paragraph 146 of the  

“main opinion”).  While fully endorsing the above  

conclusion, I wish to further elucidate the  

proposition.

Before adverting to anything else, it is essential  

to refer to Article 39 (b) of the Constitution of  

India.

“39. Certain principles of policy to be  followed by the State –  The State shall  in particular, direct its policy towards  securing -  

(b) that the ownership and control of the  material resources of the community are  so distributed as     best     to     subserve     the    common     good  ;

(emphasis is mine)

The mandate contained in the Article extracted above  

envisages, that all material resources ought to be  

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distributed in a manner which would “best subserve the  

common good”.  It is therefore apparent, that  

governmental policy for distribution of such resources  

should be devised by keeping in mind the “common good”  

of the community i.e., the citizens of this country.  

It has been expressed in the “main opinion”, that  

matters of policy fall within the realm of the  

legislature or the executive, and cannot be interfered  

with, unless the policy is in violation of statutory  

law, or is ultra vires the provision(s) of the  

Constitution of India.  It is not within the scope of  

judicial review for a Court to suggest an alternative  

policy, which in the wisdom of the Court could be  

better suited in the circumstances of a case.  Thus far  

the position is clearly unambiguous.

The legality and constitutionality of policy is  

one matter, and the manner of its implementation quite  

another.  Even at the implementation stage a forthright  

and legitimate policy, may take the shape of an  

illegitimate stratagem (which has been illustrated at a  

later juncture hereinafter).  Since the Presidential  

reference is not based on any concrete fact situation,  

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it would be appropriate to hypothetically create one.  

This would enable those responsible for decision  

making, to be able to appreciate the options available  

to them, without the fear of trespassing beyond the  

limitations of legality and constitutionality.  This  

would also ensure that a truly meaningful opinion has  

been rendered.  The illustration, that has been chosen  

is imaginary, and therefore, should not be taken as a  

reference to any similar real life  

situation(s)/circumstance(s).  The focus in the instant  

consideration is limited to allocation of natural  

resources for private commercial exploitation, i.e.,  

where a private player will be the beneficiary of such  

allocation, and will exploit the natural resource to  

make personal profits therefrom.   

The illustration chosen will be used to express an  

opinion on matters which are governed by statutory  

provisions, as also, those which are based on  

governmental policy.  This is so because in so far as  

the present controversy is concerned, the parameters  

for distribution of natural resources must be examined  

under these two heads separately.

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Coal is a natural resource.  It shall constitute  

the illustrative natural resource for the present  

consideration.  Let us assume a governmental decision  

to allocate coal lots for private commercial  

exploitation.  First, the legislative policy angle.  

Reference may be made to the Mines and Minerals  

(Development and Regulation) Act, 1957 (hereinafter  

referred to as, the MMDR Act).  The enactment deals  

exclusively with natural resources.  Section 11A of the  

MMDR Act has been chosen as the illustrative provision,  

to demonstrate how a forthright legitimate legislative  

policy, may take the shape of an illegitimate  

stratagem.  The choice of Section 11A aforesaid is on  

account of the fact that it was added to the MMDR Act  

only on 13.2.2012, and as such, there may not have  

been, as of now, any actual allocation of coal lots  

based thereon.   Section 11A of the MMDR Act, is  

being placed hereunder :

“11A. Procedure in respect of coal or lignite  – The Central Government may, for the purpose  of granting reconnaissance permit, prospecting  licence or mining lease in respect of an area  containing coal or lignite, select,     through    auction     by     competitive     bidding   on such terms  and conditions as may be prescribed, a company  engaged in, -

(i) production of iron and steel;

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(ii) generation of power; (iii) washing of coal obtained from a

mine; or (iv) such    other    end   use   as  

the   Central Government   may,    by   notification  in  the  Official Gazette, specify, and the  State Government shall grant such  

reconnaissance permit, prospecting  licence or mining lease in respect of  coal or lignite to such company as  selected     through     auction     by     competitive    bidding under this section:

Provided that the auction by competitive  bidding shall not be applicable to an area  containing coal or lignite,-

(a) where such area is considered for  allocation to a Government  company  or  corporation   for mining or such other  specified end use;

(b)  where  such  area  is considered for  allocation to  a  company  or  corporation  that  has been awarded  a  power  project  on      the       basis       of    competitive       bids      for   tariff  (including  Ultra Mega Power Projects).”

Explanation – For the purposes of this  section “company”  means a company as defined  in section 3 of the Companies Act, 1956 and  includes a foreign company within the meaning  of section 591 of that Act.

(emphasis is mine)

For the grant of a mining lease in respect of an area  

containing coal, the provision leaves no room for any  

doubt, that selection would be made through auction by  

competitive bidding.  No process other than auction,  

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can therefore be adopted for the grant of a coal mining  

lease.   

Section 11A of the MMDR Act also defines the zone  

of eligibility, for participation in such competitive  

bidding.  To be eligible, the contender must be engaged  

in the production of iron and steel, or generation of  

power, or washing of coal obtained from a mine, or an  

activity notified by the Central Government.  Only  

those satisfying the legislatively prescribed zone of  

eligibility, are permitted to compete for a coal mining  

lease.  For the sake of fairness, and to avoid  

arbitrariness, the provision contemplates, that the  

highest bidder amongst those who participate in the  

process of competitive bidding, would succeed in  

obtaining the concerned coal mining lease.  The  

legislative policy limiting the zone of consideration  

could be subject matter of judicial review.  It could  

be assailed, in case of violation of a legal or  

constitutional provision.   As expressed in the “main  

opinion” the facts of each individual case, will be the  

deciding factor for such determination.  In the absence  

of any such challenge, the legislative policy would be  

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binding and enforceable.  In such an eventuality, those  

who do not fall within the zone of consideration, would  

be precluded from the process of competitive bidding  

for a mining lease over an area having coal deposits.  

In the process of auction through competitive bidding,  

if the objective is to best subserve the common good  

(as in Article 39(b) of the Constitution of India) the  

legislative policy would be fully legitimate.  If  

however, the expressed legislative policy has no nexus  

to any legitimate objective, or it transgresses the  

mandate of distribution of material resources to “best  

subserve the common good”, it may well be unfair,  

unreasonable or discriminatory.   

For an effective analysis, Section 11A of the MMDR  

Act needs a further closer examination.  Section 11A  

aforesaid, as an exception to the legislative policy  

referred to in the foregoing paragraph, also provides  

for the grant of a mining lease for coal to a private  

player, without following the auction route.  The  

provision contemplates the grant of a mining lease for  

coal, without any reciprocal monetary or other  

consideration from the lessee.  The proviso in section  

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11A of the MMDR Act, excludes the auction route where  

the beneficiary is engaged in power generation.  Such  

exclusion, is contemplated only when the power  

generating concern, was awarded the power project, on  

the basis of “competitive bids for tariff”.  It is  

important to highlight, that there is no express  

assurance in section 11A aforesaid, that every  

entrepreneur who sets up a power project, having  

succeeded on the basis of competitive bidding, would be  

allotted a coal mining lease.  But if such an allotment  

is actually made, it is apparent, that such  

entrepreneur would get the coal lot, without having to  

participate in an auction, free of cost.  The  

legislative policy incorporated in Section 11A of the  

MMDR Act, if intended to best subserve the common good,  

may well be valid, even in a situation where the  

material resource is being granted free of cost.  What  

appears to be free of cost in the proviso in Section  

11A of the MMDR Act, is in actuality consideration  

enmeshed in providing electricity at a low tariff.  The  

aforesaid proviso may be accepted as fair, and may not  

violate the mandate contained in Article 14 of the  

Constitution of India, or even the directive principles  

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contained in Article 39(b) of the Constitution of  

India.

Hypothetically, assume a competitive bidding  

process for tariff,  amongst private players interested  

in a power generation project. The private party which  

agrees to supply electricity at the lowest tariff would  

succeed in such an auction.  The important question is,  

if the private party who succeeds in the award of the  

project, is granted a mining lease in respect of an  

area containing coal, free of cost, would such a grant  

satisfy the test of being fair, reasonable, equitable  

and impartial.  The answer to the instant query would  

depend on the facts of each individual case.  

Therefore, the answer could be in the affirmative, as  

well as, in the negative.  Both aspects of the matter  

are being explained in the succeeding paragraph.

Going back to the hypothetical illustration based  

on Section 11A of the MMDR Act.  One would add some  

further facts so as to be able to effectively project  

the legal point of view.  If the bidding process to  

determine the lowest tariff has been held, and the said  

bidding process has taken place without the knowledge,  

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that a coal mining lease would be allotted to the  

successful bidder, yet the successful bidder is awarded  

a coal mining lease.  Would such a grant be valid?  In  

the aforesaid fact situation, the answer to the  

question posed, may well be in the negative.   This is  

so because, the competitive bidding for tariff was not  

based on the knowledge of gains, that would come to the  

vying contenders, on account of grant of a coal mining  

lease.  Such a grant of a coal mining lease would  

therefore have no nexus to the “competitive bid for  

tariff”.  Grant of a mining lease for coal in this  

situation would therefore be a windfall, without any  

nexus to the object sought to be achieved.  In the  

bidding process, the parties concerned had no occasion  

to bring down the electricity tariff, on the basis of  

gains likely to accrue to them, from the coal mining  

lease.  In this case, a material resource would be  

deemed to have been granted without a reciprocal  

consideration i.e., free of cost.  Such an allotment  

may not be fair and may certainly be described as  

arbitrary, and violative of the Article 14 of the  

Constitution of India. Such an allotment having no  

nexus to the objective of subserving the common good,  

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would fall foul even of the directive principle  

contained in Article 39(b) of the Constitution of  

India.  Therefore, a forthright and legitimate policy,  

on account of defective implementation, may become  

unacceptable in law.

In a slightly changed factual scenario, the  

conclusion may well be different.  If before the  

holding the process of auction, for the award of a  

power project (based on competitive bids for tariff),  

it is made known to the contenders, that the successful  

bidder would be entitled to a mining lease over an area  

containing coal, those competing for the power project  

would necessarily incorporate the profit they were  

likely to make from such mining lease.  While  

projecting the tariff at which they would supply  

electricity, they would be in a position to offset such  

profits from their costs.  This would result in an in  

an opportunity to the contenders to lower the tariff to  

a level lower than would have been possible without the  

said lease.  In such a situation the gains from the  

coal mining lease, would be enmeshed in the competitive  

bidding for tariff.  Therefore, it would not be just to  

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assume in the instant sequence of facts, that the coal  

lot has been granted free of cost.  One must read into  

the said grant, a reciprocal consideration to provide  

electricity at a lower tariff.  In the instant factual  

scenario, the allotment of the mining lease would be  

deemed to be aimed at “subserving the common good” in  

terms of Article 39(b) of the Constitution of India.  

Therefore even the allotment of such a mining lease,  

which appears to result in the allocation of a natural  

resource free of cost, may well satisfy the test of  

fairness and reasonableness contemplated in Article 14  

of the Constitution of India.  Moreso,  because a fair  

playing field having been made available to all those  

competing for the power project, by making them aware  

of the grant of a coal mining lease, well before the  

bidding process.  The question of favouritism therefore  

would not arise.  Would such a grant of a natural  

resource, free of cost, be valid?  The answer to the  

query, in the instant fact situation, may well be in  

the affirmative.

The policy of allocation of natural resources for  

public good can be defined by the legislature, as has  

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been discussed in the foregoing paragraphs. Likewise,  

policy for allocation of natural resources may also be  

determined by the executive.  The parameters for  

determining the legality and constitutionality of the  

two are exactly the same.  In the aforesaid view of the  

matter, there can be no doubt about the conclusion  

recorded in the “main opinion”  that auction which is  

just one of the several price recovery mechanisms,  

cannot be held to be the only constitutionally  

recognized method for alienation of natural resources.  

That should not be understood to mean, that it can  

never be a valid method for disposal of natural  

resources (refer to paragraphs 10 to 12 of my instant  

opinion).   

I would therefore conclude by stating that 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  

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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.

............................J.    (JAGDISH SINGH KHEHAR)

NEW DELHI; SEPTEMBER 27, 2012.

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