Coalgate and Judicial Review of Distribution of Natural Resources

In the previous two posts, Manish has exhaustively analysed the Supreme Court’s verdict in M.L. Sharma vs Principal Secretary [“Coalgate”]. In the broader scheme of things, the judgment makes an important contribution to the Supreme Court’s evolving jurisprudence with respect to the judicial review of distribution of natural resources. Recall that in the First Spectrum Case, the Supreme Court had taken a highly interventionist stance with respect to the 2G Spectrum Scam, not only quashing the allocation of spectrum, but also – in effect – imposing a public auction as the only legitimate method for governmental distribution of natural resources. Recall also that in the Second Spectrum Case (a Presidential reference), the Supreme Court backtracked, limiting the holding of the First Spectrum Case (public auction required) to its specific facts (distribution of spectrum, not all natural resources), and also observing that while an auction was, presumably, the only legitimate method if the objective of distribution was to raise maximal revenue, it was also open to the government to set goals other than revenue maximisation, consistent with the common good. In such cases, clearly, an auction might not be the best method of distribution.

In Coalgate, the Supreme Court affirms the view of the Constitution Bench in the Second Spectrum Case. It accepts the government’s contentions that the requirements of the industry at the time of liberalisation provided strong reasons (in 1993) not to distribute coal blocks via auction. Nonetheless, it holds the allocation itself to be illegal. It does so by examining the minutes of all 36 Screening Committee Meetings (where the allocation decisions were taken), and finds that there were no relevant guidelines to determine inter-se merit and priority between applicant companies, and that whatever guidelines were there, were constantly changed. It also finds that there was no discussion about inter-se merit before allocations were awarded. On these grounds, it finds an Article 14 (arbitrariness) violation in the State action.

I’ve written in detail about the place of Coalgate within the broader framework of the Supreme Court’s natural resources jurisprudence elsewhere (see here and here). In this post, I want to focus on something specific: the standard of review that the Court does not directly expound, but which implicitly emerges out of its analysis.

The primary reason why the Court holds the allocations illegal – as mentioned just above – is because of the absence of guidelines that would help the Screening Committee decide which applicants would succeed. In the first set of meetings, it notes, there are no guidelines at all. When some kind of guidelines are framed, they make no mention of determining inter-se merit. Notice that there are three things that the Supreme Court does not do (or rather, it is spared doing, because of the absence of guidelines): examining the sufficiency of the guidelines for actually determining inter-se merit, examining the government’s factual assessment of inter-se merit within the framework of the guidelines, and examining the outcomes of the allocations.

All this sounds very familiar. Indeed, it is analogous to the Court’s jurisprudence under Article 356 (in the emergency powers chapter) of the Constitution. Article 356 allows for President’s Rule if “on receipt of report from the Governor of the State or otherwise, [the President] satisfied that a situation has arisen in which the government of the State cannot be carried on in accordance with he provisions of [the] Constitution.” In S.R. Bommai vs Union of India, the Supreme Court held:

“The President’s satisfaction [under Article 356] has to be based on objective material. That material may be available in the report sent to him by the Governor or otherwise or both from the report and other sources. Further, the objective material so available must indicate that the government of the State cannot be carried on in accordance with the provisions of the Constitution. Thus the existence of the objective material showing that the government of the State cannot be carried on in accordance with the provisions of the Constitution is a condition precedent before the President issues the proclamation. Once such material is shown to exist, the satisfaction of the President based on the material is not open to question. However, if there is no such objective material before the President, or the material before him cannot reasonably suggest that the government of the State cannot be carried on in accordance with the provisions of the Constitution, the proclamation issued is open to challenge.”

As the Law Commission points outS.R. Bommai limits judicial review of an Article 356 proclamation to verifying whether there existed material that was relevant to a consideration that the government of a state cannot be carried on in accordance with the Constitution. What the Court cannot do is substitute its own opinion for whether a state government could or could not be carried on in accordance with the Constitution, and nor can it impugn the process by which the President (i.e., in effect, the Council of Ministers) came to that conclusion.

We can now see the similarities. The Court held the first batch of allocations (pursuant to the first twenty-one meetings) illegal because of the absence of any guidelines for determining how to select applicants on the basis of merit. It held the next batch illegal because even the guidelines that were framed were of no aid in determining the merit. Thus, the first batch related to the existence of objective 356 material, and the second batch related to its relevance – which, together, constitute the limits of judicial review under 356, and beyond which the Court, in Coalgate, did not go.

What will be particularly interesting in the future will be to see how far the Court takes its 356-analogous line of thought. Coalgate was a particularly easy case because of the absence of guidelines, or their prima facie irrelevance. What will happen if, for instance, the government does frame guidelines, which are at least prima facie relevant to determining merit – but its allocations are then challenged on the grounds that it has incorrectly – or unreasonably – applied its guidelines to the actual question of allocation, or misconstrued the objective requirements of the guidelines? Will the Court then adopt the Article 356 framework fully, and defer to the government? Or will it – keeping in mind Article 39(b) – adopt a more interventionist framework when it comes to questions of distributing natural resources to private entities? This is a fascinating question, and M.L. Sharma leaves it open – perhaps to be settled by another Court, adjudicating another scam.



Filed under Judicial Review, Of Distribution of Natural Resources

5 responses to “Coalgate and Judicial Review of Distribution of Natural Resources

  1. lula

    the mylaw links to your commentary on natural resources jurisprudence doesn’t seem to be working. could you post those articles on your blog here?

  2. Pingback: Judicial Review of Public Policy on ground of Arbitrariness | Indian Lawyers Forum


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