SC says auction order not for all natural resources, govt welcomes decision

Responding to a presidential reference following the verdict on the 2G spectrum allocation, the Supreme Court on Thursday said the auction route was not the only method for allocating natural resources. The five-judge apex court bench headed by Chief Justice SH Kapadia said auction could be a better option where the aim is maximisation of revenue, but then "every method other than auction of natural resources cannot be shut down".

The court was answering a presidential reference seeking its opinion on whether auction was the only method of allocating natural resources across the board.

Expressing the opinion that auction could not be the sole method of dispersing natural resources, Justice DK Jain said "auction could not be elevated as a constitutional mandate".

Having said so, the opinion said the court cannot go into the wisdom of the executive in policy matters and decide on which is the suitable method of allocating natural resources. The court said it does not have the expertise to decide which method is suitable for the disposal of a particular natural resource.

The economic policy of the government can only be struck down if it is found to be arbitrary and capricious, the court said.

In a separate but concurring judgment, Justice JS Kehar gave his additional reasons in respect on question one and four of the presidential reference.

The court did not answer three questions relating to the 2G verdict of February 2012 by which it had cancelled 121 2G licences.

'SC order vindicates govt stance'

Hailing Supreme Court judgement on auction of natural resources, Telecom Minister Kapil Sibal on Thursday said the apex court has brought "constitutional clarity" on the issue.

Stating that the Court has upheld the government's stand, Sibal said it has opined that auction was not the only way for allocating natural resources.

Institutions like CAG "might have perhaps unwittingly, erroneously interpreted the SC judgement relating to the 2G case and thought that all natural resources must be auctioned," he said. "The SC has provided constitutional clarity today and we welcome it."

Welcoming the SC decision, Commerce Minister Anand Sharma said the judgement "vindicates" the position that the government had taken.

"When a state has to take decisions, public good has to be kept in mind... The SC has also upheld, that it is public good which is important, and revenue maximisation is subservient to that, not the other way round," he said. "And all national resources (are) not meant to be auctioned."

The presidential reference was filed April 12 and hearing on it began May 11.

Of the 12 questions raised in the reference, the government sought the court's opinion on whether auctioning was the only permissible method for the disposal of all natural resources.

The reference asked whether following the auction route for the disposal of natural resources was not contrary to earlier judgments of the Supreme Court.

The reference was made in the wake of the 2G verdict Feb 2, wherein the apex court said if scarce natural resources like spectrum were to be alienated by the state, then the only legal method was transparent public auction.

The apex court, while holding that 'first come, first served' policy was flawed, cancelled the licences.

The government had on April 12 moved the reference signed by the then President Pratibha Patil in which eight questions have been raised, including whether there could be judicial interference in policy matters, vis-a-vis disposal of natural resources and investments made by foreign investors under multi and bilateral agreements.

"Whether the judgement lays down that the permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auction," the reference had stated.

"Whether the court holds that within the permissible scope of judicial review that the policy is flawed, is the court not obliged to take into account investment made under the said policy including the investment made by foreign investors under the multi and bilateral agreements," it said.

It had sought the court's opinion on "whether the judgement is required to be given retrospective effect so as to unsettle the licences issued for 2G spectrum and allocated after 1994 till 2008."

The reference also touched upon the 3G spectrum allocated through "auction" and wanted to know the implications of the judgement on it.

"Whether 3G spectrum acquired through the auction in 2010 by entities whose (2G) licences have been quashed in the judgement stands withdrawn," it asked.

A meeting of the Union cabinet, chaired by Prime Minister Manmohan Singh, had on April 10 cleared the telecom ministry's proposal to seek the Supreme Court's opinion on various issues arising out of the February 2 judgement.

The two-judge bench, in its verdict, had also observed that auction was best suited route for allocating natural resources like telecom spectrum because the policy of first-come-first-serve was flawed.

The bench had on May 11 issued notices to the state governments and industrial chambers FICCI and CII and sought their responses on behalf of the private industries.

The court had also issued notices to the NGO, Centre for Public Interest Litigation (CPIL) and Janata Party president Subramanian Swamy on whose petitions a bench comprising justices GS Singhvi and AK Ganguly (since retired) had delivered a judgement on February 2 cancelling 122 telecom licences by holding that the first-come-first-served policy was illegal and unconstitutional.

The bench headed by justice Singhvi had held that all natural resources should be allocated through auction.

-HT 

One step e-auction should be rule for allocating national resources

The Supreme Court's emphasis on the public good being served in the allocation of national resources is a welcome reiteration of what it had said in its earlier judgment. Its clarification that auctions are not necessarily the only way of allocating resources must be seen in this light. Indeed, in theory, the government could adopt other methods for allocating resources.
However, almost all of them, like firstcome-first-served (FCFS), lotteries and beauty parades have in practice proved to be extremely susceptible to corruption or rigging. Ascending auctions, on the other hand, serve the purpose of maximizing government revenues but not of maximizing public good.

 

Instead, by pricing the resources unrealistically high, they hurt industry and the consumer and hence subvert the common good. That is why we have consistently argued (including in a full page special report on September 11) that when it comes to allocating national resources, the best method is to use single-step e-auctions, which allow for realistic bids and hence promote industry profitability which, in turn, allows industry to provide high quality affordable services to the consumer.
Therefore, the government should treat FCFS, beauty parades and ascending auctions as banned for allocation of national resources, except in certain very special situations. The accompanying chart gives a snapshot of what, in our view, is the method best suited to allocation of various resources.

-TOI 

Auctions are dead, long live auctions

  No matter how the Manmohan Singh government spins the 2G Presidential Reference judgment, the principle at stake in the Supreme Court’s hearing on the allocation of natural resources was not the method of allotment but the need for transparency and fair play. Air and water, for example, are natural resources that no sane person would suggest allocating via an auction. But in the case of 2G spectrum and coal, the allocations made were arbitrary and often mala fide. The government gave the resources away knowing full well there was a better way of allocating them. Aiming to keep call and power prices low was an afterthought, a “policy” invoked to justify caprice. Senior Ministers are now hailing the court’s acknowledgment that the government has the right to allocate natural resources and that auctions, though preferred, are not mandatory. But even as they toast their “victory,” government managers ought to realise what the court has handed them is a poisoned chalice. Indeed, its opinion has placed new riders that will make it harder for discretionary powers to be abused. From now on, the state’s actions have to “be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which are rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14,” the judgment says, invoking the constitutional guarantee of equality.

This language makes it virtually impossible for the government to resort to any arbitrary process of allocating scarce, valuable resources, since methods like first-come-first-served, lotteries and beauty parades cannot even begin to pass the new tests. In essence, then, the government can have any process for allocation it wants, so long as it’s an auction. The order’s carefully worded tests on allocation allow an aggrieved party to approach the courts to get an unfair or capricious allocation set aside, even those involving auctions. After all, auctions too can be compromised, as some of the privatisation deals struck by the former National Democratic Alliance government most likely were. While the court said policymaking is the government’s domain, it added “the implementation of policy will be tested and interfered with when found wanting”. The government can celebrate all it wants, but the court’s opinion in no way diminishes the scam taint from 2G and coal. If anything, the court has dealt a blow to crony capitalism by making the process for future allocations far stricter. 

-The Hindu