Monday, April 30, 2012

S C JUDGMENT IN 2G - A STRIKING BLOW AGAINST CORRUPTION


S C JUDGMENT IN 2G - A STRIKING BLOW AGAINST CORRUPTION[i]

By Dr T Padma., LLM., Ph D (Law)
LLD Scholar (A P Law University)
kethepadma@gmail.com

"Earth provides enough to satisfy every man's needs but not every man's greed."
-         Mahatma Gandhi
Background

The recent Supreme Court's landmark judgment cancelling 122 telecom licenses in 2G delivered on 2nd February, 2012 goes beyond telecom, spoiling the party for corrupt politicians, bureaucrats and big business. The judgment came exactly a year after former Telecom Minister A. Raja was arrested by the Central Bureau of Investigation.
The reverberations of the judgment actually extend far beyond telecom, crushing the subjective power of the government to issue licences and contracts in any sector like power, coal, minerals, mines, land, and even Special Economic Zones (SEZ), that   allocates scarce national resources. This effectively attacks the fountainhead of all large corruption linked to government contracts.
The first irrefutable principle of the judgment is on the issue of ownership and control of natural resources provided under Article 39(b) of the Constitution: “The ownership and control of natural resources of a community should be distributed so as to best sub-serve the common good but no comprehensive legislation has been enacted to generally define natural resources and a framework for their protection.” With the government dithering on such specific legislation, the judgment has become the de facto law in the matter.
Recognising that while the state is deemed to have a proprietary interest in natural resources, it must act as a guardian and trustee, the judgment affirms that the people are the designated owners of natural resources in any country. Acknowledging the high economic value of natural resources, the judgment recognises that these national assets are scarce, finite, and susceptible to degradation in case of inefficient utilisation.
Highlighting the issue of “public trust,” the judgment quotes from several international judgments, including the famous American one, of Illinois Central R. Co. vs Illinois[1], and the ones in India such as M.C. Mehta Vs Kamal Nath to make the point that: “Public interest doctrine enjoins upon the government to protect the resources for the enjoyment of the general public rather than permit its use for private ownership or commercial purposes.” At the heart of the public trust doctrine is the limits and obligations upon government agencies as administrators on behalf of all people, especially future generations.


Natural Resources Means What?

Even though there is no universally accepted definition of natural resources, they are generally understood as elements having intrinsic utility to mankind. They may be renewable or non renewable. They are thought of as the individual elements of the natural environment that provide economic and social services to human society and are considered valuable in their relatively unmodified, natural, form. A natural resource’s value rests in the amount of the material available and the demand for it. The latter is determined by its usefulness to production. Natural resources belong to the people but the State legally owns them on behalf of its people and from that point of view natural resources are considered as national assets, more so because the State benefits immensely from their value. The State is empowered to distribute natural resources. However, as they constitute public property/national asset, 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. Of course, environment laws enacted by Parliament and State legislatures deal with specific natural resources, i.e., Forest, Air, Water, Costal Zones, etc.

Natural Resources Belong to Whom?

The ownership regime relating to natural resources can also be ascertained from international conventions and customary international law, common law and national constitutions. In international law, it rests upon the concept of sovereignty and seeks to respect the principle of permanent sovereignty (of peoples and nations) over (their) natural resources as asserted in the 17th Session of the United Nations General Assembly (1962) and then affirmed as a customary international norm by the International Court of Justice in the case opposing the Democratic Republic of Congo to Uganda. Common Law recognizes States as having the authority to protect natural resources insofar as the resources are within the interests of the general public. The State is deemed to have a proprietary interest in natural resources and must act as guardian and trustee in relation to the same. Constitutions across the world focus on establishing natural resources as owned by, and for the benefit of, the country. In most instances where constitutions specifically address ownership of natural resources, the Sovereign State, or, as it is more commonly expressed, ‘the people’, is designated as the owner of the natural resource.

Spectrum has been internationally accepted as a scarce, finite and renewable natural resource which is susceptible to degradation in case of inefficient utilisation. It has a high economic value in the light of the demand for it on account of the tremendous growth in the telecom sector. Although it does not belong to a particular State, right of use has been granted to States as per international norms.

What is Public Trust Doctrine?

i)    American Courts

The public trust doctrine is the principle that certain resources are preserved for public use, and that the government is required to maintain them for the public's reasonable use. The American courts developed this ‘public trust doctrine’ to the effect that the resources like air, sea, water and forests were of such great importance to the people as a whole that it would be wholly unjustified to make them a subject of private ownership.  These resources were the gifts of nature and they should be made freely available to everyone irrespective of the status in life.  State has the duty to protect the resources for the enjoyment of the general public rather than to permit their exploitation for commercial purposes by private owners. The American courts emphasized that protection from ecological pollution was among the purposes of public trust.

ii)    Indian Courts

It is important to notice that material resources of the community like forests, ponds, hillock, mountains etc., are nature’s bounty.  They maintain delicate ecological balance.  They need to be protected for a proper and healthy environment which enables people to enjoy a quality of life which is the essence of the guaranteed right under Article 21 of the Constitution. 

In India, the Courts have given an expansive interpretation to the concept of natural resources and have from time to time issued directions, by relying upon the provisions contained in Articles 38, 39, 48, 48A and 51A (g) of the Constitution of India, for protection and proper allocation/distribution of natural resources and have repeatedly insisted on compliance of the constitutional principles in the process of distribution, transfer and alienation to private persons. The doctrine of public trust, which was evolved in Illinois Central Railroad Co. v. People of the State of Illinois[2], has been held by the Apex Court to be a part of the Indian jurisprudence in M.C. Mehta v. Kamal [3] and has been applied in Jamshed Hormusji Wadia v. Board of Trustee, Port of Mumbai[4], Intellectuals Forum, Tirupathi v. State of A.P[5] and Fomento Resorts and Hotels Limited v. Minguel[6]. In Jamshed Hormusji Wadia’s case, the Apex Court held that the State’s actions and the actions of its agencies/instrumentalities must be for the public good, achieving the objects for which they exist and should not be arbitrary or capricious. In the field of contracts, the State and its instrumentalities should design their activities in a manner which would ensure competition and not discrimination. They can augment their resources but the object should be to serve the public cause and to do public good by resorting to fair and reasonable methods. In Fomento Resorts and Hotels Limited case, the Apex Court referred to the article of Prof. Joseph L. Sax[ii] and made the following observations:

a)  The public trust 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. This doctrine puts an implicit embargo on the right of the State to transfer public properties to private party if such transfer affects public interest, mandates affirmative State action for effective management of natural resources and empowers the citizens to question ineffective management thereof.

b)   The heart of the public trust doctrine is that it imposes limits and obligations upon government agencies and their administrators on behalf of all the people and especially future generations. For example, renewable and non-renewable resources, associated uses, ecological values or objects in which the public has a special interest (i.e. public lands, waters, etc.) are held subject to the duty of the State not to impair such resources, uses or values, even if private interests are involved. The same obligations apply to managers of forests, monuments, parks, the public domain and other public assets.

c)   Professor Joseph L. Sax in his classic article, “The Public Trust Doctrine in Natural Resources Law: Effective Judicial Intervention” (1970), indicates that the public trust doctrine, of all concepts known to law, constitutes the best practical and philosophical premise and legal tool for protecting public rights and for protecting and managing resources, ecological values or objects held in trust.

d)   The public trust doctrine is a tool for exerting long-established public rights over short-term public rights and private gain. Today every person exercising his or her right to use the air, water, or land and associated natural ecosystems has the obligation to secure for the rest of us the right to live or otherwise use that same resource or property for the long-term and enjoyment by future generations. To say it another way, a landowner or lessee and a water right holder has an obligation to use such resources in a manner as not to impair or diminish the people’s rights and the people’s long-term interest in that property or resource, including down slope lands, waters and resources.”

Natural Resources - Judicial Approach

The consistent position adopted by the Indian Courts as enunciated in one of its judgments has been that ‘there can neither be development at the cost of the environment or environment at the cost of development’.

In Secretary, Ministry of Information & Broadcasting, Govt. of India v. Cricket Assn. of Bengal[7], the Court was dealing with the right of organizers of an event, such as a sport tournament, to its live audiovisual broadcast, universally, through an agency of their choice, national or foreign. In paragraph 78, the Apex Court described the airwaves/frequencies as public property in the following words:
“There is no doubt that since the airwaves/frequencies are a public property and are also limited, they have to be used in the best interest of the society and this can be done either by a central authority by establishing its own broadcasting network or regulating the grant of licences to other agencies, including the private agencies.”
In Reliance Natural Resources Limited v. Reliance Industries Limited[8], the Apex Court made the following observations:
“It must be noted that the constitutional mandate is that the natural resources belong to the people of this country. The nature of the word “vest” must be seen in the context of the public trust doctrine (PTD). Even though this doctrine has been applied in cases dealing with environmental jurisprudence, it has its broader application.”
The Court in re Special Reference No. 1 of 2001 (2004) 4 SCC 489, M.C. Mehta v. Kamal Nath [9] and observed:
“This doctrine is part of Indian law and finds application in the present case as well. It is thus the duty of the Government to provide complete protection to the natural resources as a trustee of the people at large.”
The Court also held that 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 and natural resources must always be used in the interests of the country and not private interests.
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.
In Akhil Bharatiya Upbhokta Congress v. State of M.P[10], the Apex Court examined the legality of the action taken by the Government of Madhya Pradesh to allot 20 acres land to an institute established in the name of Kushabhau Thakre on the basis of an application made by the Trust. One of the grounds on which the appellant challenged the allotment of land was that the State Government had not adopted any rational method consistent with the doctrine of equality. The High Court negatived the appellant’s challenge. Before the Apex Court, learned senior counsel appearing for the State relied upon the judgments in Ugar Sugar Works Ltd. v. Delhi Administration[11], State of U.P. v. Choudhary Rambeer Singh[12], State of Orissa v. Gopinath Dash[13] and Meerut Development Authority v. Association of Management Studies[14]  and argued that the Court cannot exercise the power of judicial review to nullify the policy framed by the State Government to allot Nazul land without advertisement. However, the Apex Court rejected the argument, referred to the judgments in Ramanna Dayaram Shetty v. International Airport Authority of India[15], S.G. Jaisinghani v. Union of India[16], Kasturilal Lakshmi Reddy v. State of J & K[17], Common Cause v. Union of India[18], Shrilekha Vidyarthy v. State of U.P[19], LIC v. Consumer Education and Research Centre[20], New India Public School v. HUDA[21] and held:
“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.”
In Sachidanand Pandey v. State of West Bengal[22], the Court referred to some of the precedents and laid down the following propositions:
“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 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.”

Conclusion

The Court concluded 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”.
This shatters the government's stand that the allocation of natural resources is its sole preserve, and such ‘policy' decisions should not be open to public or legal scrutiny. Traditionally, courts have been reluctant to review ‘government policies' as they are considered an exclusive prerogative of the executive and formed after considering expert opinion.
Invoking the doctrine of equality deals the hardest blow to the opaque allocation procedures for natural resources that are in use for award of Central and State government contracts. The judgment states that the doctrine of equality which emerges from the concept of justice and fairness must guide the state in determining the actual mechanism of distribution of natural resources. This has two aspects: first, it regulates the rights and obligations of the state vis-a-vis its people and demands that the people be granted equitable access to natural resources and/or its products, and that they be adequately compensated for the transfer of resources to the public domain. This considerably debilitates the government's line in applying subjective criteria such as first come, first served when allocating natural resources in the future. Further, it requires the national exchequer to place a value on a natural resource before granting any party the privilege of using it.
The second part of the equality doctrine is explained as the need to regulate the rights and obligations of the state vis-a-vis private parties seeking to acquire/use resources and demands that the procedure adopted for distribution is just, non-arbitrary and transparent and that it does not discriminate between similarly-placed parties. This specifically addresses legacy issues of changing the goalpost after the game has begun such as tampering with cut-off dates or altering the qualifying criteria after applications have been submitted or bids placed.
Overall, it ensures that every party has an equal chance of transparently acquiring the asset, based on the rational value that it believes can be derived from the acquisition. The judgment specifically tears apart the first come, first served system, firmly re-establishing auctions as a preferred option.
Simply put, the judgment sends out a message that from now on, offenders will be punished irrespective of political status, financial power and the time or money that may have been invested in an act that was illegal to begin with.
Striking a blow against corruption by empowering all those - non-governmental organisations, enlightened citizens and activists - fighting big corruption, this landmark judgment carries the potential of fast-tracking the pace of administrative reforms and governance in the country in a manner that was not witnessed in the past.


[Published in Supreme Court Journal - February, 2012]

[This material is put online to further the educational goals of ‘Study in Law’. This material may be used freely for educational and academic purposes. It may not be used in any way for profit.]


[1] Illinois Central Railroad v. Illinois; 146 U.S. 387 (1892)
[2] Illinois Central Railroad Co. v. People of the State of Illinois 146 U.S. 387 (1892)
[3] M.C. Mehta v. Kamal Nath (1997) 1 SCC 388
[4] Jamshed Hormusji Wadia v. Board of Trustee, Port of Mumbai (2002) 3 SCC 214
[5] Intellectuals Forum, Tirupathi v. State of A.P. (2006) 3 SCC 549
[6] Fomento Resorts and Hotels Limited v. Minguel Martins (2009) 3 SCC 571
[7] Secretary, Ministry of Information & Broadcasting, Govt. of India v. Cricket Assn. of Bengal, (1995) 2 SCC 161
[8] Reliance Natural Resources Limited v. Reliance Industries Limited, (2010) 7 SCC 1
[9] M.C. Mehta v. Kamal Nath (1997) 1 SCC 388
[10] Akhil Bharatiya Upbhokta Congress v. State of M.P. (2011) 5 SCC 29
[11] Ugar Sugar Works Ltd. v. Delhi Administration (2001) 3 SCC 635
[12] State of U.P. v. Choudhary Rambeer Singh (2008) 5 SCC 550
[13] State of Orissa v. Gopinath Dash (2005) 13 SCC 49
[14] Meerut Development Authority v. Association of Management Studies (2009) 6 SCC 171
[15] Ramanna Dayaram Shetty v. International Airport Authority of India (1979) 3 SCC 489
[16] S.G. Jaisinghani v. Union of India AIR 1967 SC 1427
[17] Kasturilal Lakshmi Reddy v. State of J & K (1980) 4 SCC 1
[18] Common Cause v. Union of India (1996) 6 SCC 530
[19] Shrilekha Vidyarthy v. State of U.P. (1991) 1 SCC 212
[20] LIC v. Consumer Education and Research Centre (1995) 5 SCC 482
[21] New India Public School v. HUDA (1996) 5 SCC 510
[22] Sachidanand Pandey v. State of West Bengal (1987) 2 SCC 295


[i] SC Judgment dated 02/02/2012  in Centre for Public Interest Litigation and others Vs  Union of India and others (Writ Petition (Civil) No. 423 of 2010) and Dr. Subramanian Swamy  Vs Union of India and others (Writ Petition (Civil) No. 10 of 2011)
[ii] "The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention" by   Sax, Joseph L. (Michigan Law Review, Vol. 68, No. 3) 68 (3): 471–566

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