Ownership and control of material resources of the community

Recent trends in Judiciary

Dr. Kondaiah Jonnalagadda, Assistant Professor, NLIU, Bhopal

Ownership and Control of the Material resources of the Community is to be distributed according to the policy of the state to sub-serve the common good, as it is given in Article 39 of Constitution of India. State also acts as trusty of public property. Exploration and Exploitation of natural resource, public property should identify the beneficiary through the policy. The beneficiary should not be a private party, multinational company, or any other body corporate; it is always people of India.  Identification of beneficiary and distribution of resources is one of the primary duty of state while distributing natural resources.

Any means of Jobbery, Nepotism, and arbitrariness in distribution of natural resources is violation of Article 14 of the constitution of India. The existing of the methods of distribution of natural resources will destroy the statehood, because of Corporates enjoy benefits and profits, whereas the property belong to common man.

With this back drop, the author will analyze in this article the various judicial precedents pronounced by the Supreme Court of India, to protect the property of common man and acted as trustee of property, though it is the duty of executive.

Object of Part-IV of the constitution

The Fundamental Rights and the Directive Principles constitute the ‘conscience’ of our Constitution. The purpose of the fundamental rights is to create an egalitarian society, to free all citizens from coercion or restriction by society and make liberty available to all. The purpose of Directive Principles is to fix certain social and economic goals for immediate attainment by bringing about non violent social revolution. Through such a social revolution the Constitution seeks to fulfil the basic needs of the common man and to change the structure of the society. It aims at making the Indian masses free in the positive sense. Without faithfully implementing Directive Principles, it is not possible to achieve the Welfare Sate contemplated by the Constitution ((See Kesavananda Bharati v. State of Kerala (1973) 4 SCC 225)).

Directive Principles are also fundamental. They can be effective if they are to prevail over Fundamental Rights of a few in order to sub-serve the common good and not allow the economic system to the common detriment ((Ibid Per Ray J)). Our Constitution aim at bringing about a synthesis between “Fundamental Rights” and “Directive Principles of State Policy”, by giving to the former a pride of place and to the latter a place of permanence. Together, not individually, they from the core of the Constitution. Together, not individually, they constitute its true conscience ((Ibid Per Chandrachud, J)).

Judicial Trends from 1980-2014

The Supreme Court of India  in Kasturi Lal Lakshmi Reddy and Ors.v. State of J and K and Anr., (([1980] 4 SCC 1))had said that where the State was allocating resources such as water, power, raw materials, etc., for the purpose of encouraging setting up of industries within the State, the State was not bound to advertise and tell the people that it wanted a particular industry to be set up within the State and invite those interested to come up with proposals for the purpose. It was also observed that 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.

In Sachidanand Pandey and Anr.v. State of West Bengal and Ors. (([1987] 2 SCC 295))this Court had observed that ordinary rule for disposal of State-owned or public-owned property, was by way of public auction or by inviting tenders but there could be situations where departure from the said rule may be necessitated but then the reasons for the departure must be rational and should not be suggestive of discrimination and that nothing should be done which gives an appearance of bias, jobbery or nepotism. This principle was echoed again in Haji T.M. Hassan Rawther v. Kerala Financial Corporation, (([1988] 1 SCC 166))wherein this Court reiterated that the public property owned by the State or by an instrumentality of State should be generally sold by public auction or by inviting tenders. It was emphasized that this rule has been insisted upon not only to get the highest price for the property but also to ensure fairness in the activities of the State and public authorities and to obviate the factors like bias, favoritism or nepotism. Clarifying that this is not an invariable rule, the Court reiterated that departure from the rule of auction could be made but then it must be justified.

The above principle is again stated by this Court in M.P. Oil Extraction and Anr. v. State of M.P. and Ors., (([1997] 7 SCC 592))in which this Court said that distribution of largesse by inviting open tenders or by public auction is desirable but it cannot be held that in no case distribution of such largesse by negotiation is permissible.

In Netai Bag and Ors.v. State of West Bengal and Ors. (([2000] 8 SCC 262))this Court said that when any State land is intended to be transferred or the State largesse is decided to be conferred, resort should be had to public auction or transfer by way of inviting tenders from the people as that would be a sure method of guaranteeing compliance with mandate of Article 14 of Constitution but non-floating of tenders or not holding public auction would not in all cases be deemed to be the result of the exercise of the executive power in an arbitrary manner.

In VillianurIyarkkaiPadukappuMaiyam v. Union of India and Ors., the matter before this Court related to the selection of contractor for development of the port of Pondicherry without floating a tender or holding public auction. The Court said that where the State was allocating resources such as water, power, raw materials, etc., for the purpose of encouraging development of the port, the State was not bound to advertise and tell the people that it wanted development of the port in a particular manner and invite those interested to come up with proposals for the purpose (([2009] 7 SCC 561)).

In Centre for Public Interest Litigation and Ors. v. Union of India and Ors., (([2012] 3 SCC 1))this Court stated that a duly publicised auction conducted fairly and impartially was perhaps the best method for alienation of natural resources lest there was likelihood of misuse by unscrupulous people who were only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. Court laid emphasis that 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.

The Constitution Bench clarified that the statement of law in Centre for Public Interest Litigation and Ors. v. Union of India and Ors. (([2012] 3 SCC 1))that while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction was confined to the specific case of spectrum and not for dispensation of all natural resources. The Constitution Bench said that findings of this Court in Centre for Public Interest Litigation and Ors. v. Union of India and Ors.  were limited to the case of spectrum and not beyond that and that it did not deal with the modes of allocation for natural resources other than spectrum.

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.

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 KasturiLal’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.

In Natural Resources Allocation, In re, Special Reference No. 1 of 2012 (([2012] 10 SCC 1)): the Constitution Bench, in the main judgment, thus, concluded that auction despite being a more preferable method of alienation/allotment of natural resources cannot be held to be constitutional requirement or limitation for alienation of all natural resources and, therefore, every method other than auction cannot be struck down as ultra vires the constitutional mandate. The Court also opined that auction as a mode cannot be conferred the status of a constitutional principle. While holding so, the Court held that alienation of natural resources is a policy decision and the means adopted for the same are, thus, executive prerogatives. The Court summarized the legal position as under:

“To summarise in the context of the present Reference, it needs to be emphasised 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-a-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 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 ((ibid)).”

Regard being had to the aforesaid precepts, we (Supreme Court) 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 maximising private entrepreneurs, adoption of means other than those that are competitive and maximise 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, unreasonable and capricious due to its antimony with Article 14 of the Constitution.

Common Good and Distribution of Natural Resources

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. 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”.

It can thus, be seen from the aforequoted 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 actualisation.

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 sub-served 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 maximisation is not the only way in which the common good can be sub-served. Where revenue maximisation 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 maximisation 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.

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 maximisation, 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 predefine any economic policy as a constitutional mandate. Even the mandate of Article 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 sub-serve 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.

Public Trust Doctrine in Economic Laws

Though the Public Trust doctrine is used in environmental law protection, it is also used in economic laws as protect the interest of stake holders. 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 ((ibid)):

“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…”

The learned Judges adverted to the ‘public trust doctrine’ as enunciated in The Illinois Central Railroad Co. v. The People of the State of Illinois ((36 L ED 1018 : 146 U.S. 387 (1892); M.C. Mehta v. Kamal Nath and Ors. (1997) 1 SCC 388; JamshedHormusjiWadia v. Board of Trustees, Port of Mumbai and Anr. (2004) 3 SCC 214; Intellectuals Forum, Tirupathi v. State of A.P. and Ors: (2006) 3 SCC 549; Fomento Resorts and Hotels Limited and Anr. v. Minguel Martins and Ors. (2009) 3 SCC 571 and Reliance Natural Resources Limited v. Reliance Industries Limited (2010) 7 SCC 1))and held ((ibid)):

. 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, the Bench ultimately concluded thus:

In conclusion, It was upheld 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 ((AkhilBhartiyaUpbhokta Congress v. State of Madhya Pradesh and Ors. (2011) 5 SCC 29 and SachidanandPandey and Anr. v. State of West Bengal and Ors. (1987) 2 SCC 295)).


On the basis of various judicial pronouncements and policies of state, it is submitted that the state is the trustee of the public property. However, it can be seen from the recent highlighted scams like, spectrum, Coalgate and others etc. Public property is being used for the benefit of private parties and not the common good. In these time, Courts interference protected the interest and object of Directive principles of state policy, where as it is the duty of executive to uphold and protect the interest of public property and natural resources at large.

It submitted that it is the judicial justice which prevented private parties to enjoy the benefits of public property by using the means of jobbery, nepotism, and bias.   It is also seen from the above cases, that the private companies and MNC’s enjoyed the benefits and profits over a period of two decades due to the licenses/leases given by government. After cancelling all these licenses/ leases the state will be allocating the same to private parties, however, it has to follow mandate given by the Supreme Court of India.

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