Chapter-IV Economic Policies and

Constitutional Adjudication since 1991: Analysis of Cases

Chapter IV Economic Policies and Constitutional Adjudication since 1991: Analysis of Cases

4.1 Introduction

In the previous chapter we witnessed that the Supreme Court has played a significant

role in the realm of economic policies of the country since independence. In exercise

of its power of judicial review the court has been instrumental in validating policy

decisions as well as shaping the process of lawful implementation thereof. It has been

able to create a constitutional bulwark, which is to be complied with while a new

policy decisions is to be given effect to. It has also undertaken the task of balancing

individual freedom in economic activities, the entrenched role of state in the economy

both as an actor and a regulator with that of the Constitutional aspiration of attaining

economic justice.

In this chapter we shall focus our attention on studying the role and response of the

court in the process of economic reform as introduced in 1991. Since judicial review

is the most potent weapon in the hands of the judiciary, we shall examine the

decisions pronounced by the court wherein constitutional validity of policy measures

has been raised. The impact that these decisions have upon the validity and

continuation of these policies will be relevant to assess the role of the Supreme Court

in the process of economic reforms in India.

The importance of this analysis lay on the fact of that the scope of judicial review may

have undergone changes since there has hardly been any constitutional amendment

pertaining to economic aspects. This is strikingly different from the experiences of the·

previous decades, when constitution not only provided rights and the limitations for

state activity which guided the formulations of economic policies but was also used as

a site for introducing these policies. Constitution was frequently amended to

accommodate changes in economic policies. Now there is a clear departure from that,

and the constitution is no more a site for implementing policy measures rather it is a

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point of reference for assessing the validity of legislative and executive action. This

changed emphasis upon the constitution may have impacted upon the exercise of the

power of judicial review. In the given circumstances the real challenge before the

court is to interpret the Constitution in the shadow of planning commission

constitutional jurisprudence and adapt it to a markedly different economic scenario.

4.2 Background

This decade began in the backdrop of incidents of 1980s which was witness to a

responsive and proactive judiciary. The activist role played by the judiciary had

disproved the myths that judges have passive and a very limited role to play. The

Supreme Court in particular had opened up new frontiers of judicial activism by

encouraging sundry public interest litigations and expanding the meaning and content

of "right to life". Court had successfully projected itself as the ultimate protector of

people's rights.) Invoking its epistolary jurisdiction and imparting justice in areas and

manners that were traditionally outside the realm of judicial review the court had

added a new dimension to the process of adjudication. The court was no more

'neutral' in the sense of being unaware of the sufferings of people. It had taken upon

the task of governance in its own hands and issued continuous mandamus to provide

immediate solution on a number of issues. In short when economic reform was

introduced, judicial creativity was at its peak.

When the new economic policies were introduced, the court was also busy sorting out

some of the other important legal battles, where controversies of varied origin and

colour were converted into adjudicatory material and brought before the court for

legal solution. The court entertained those petitions even if the 'justiciability' thereof

remained illusive. Many a times the response of the court was simply a modus vivendi

I The zeal to do "complete justice" has overshadowed the Constitutional mandate under article 139 read with article 32 (2), which impose a substantive limitation upon the power of the Supreme Court to issue writs. Article 139 empowers the parliament to confer on the supreme court the power to issue directions orders or writs including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari or any of them for any purpose other than those mentioned in clause (2) of article 32. However the parliament has not enacted any such law conferring on the supreme court additional power to issue for purposes other than those mentioned in article 32 (2). In the absence of any conferment of power, the power of the Supreme Court is limited in nature. However the court has relied upon its duty to do complete justice to justify the innovations in adjudication and remedies.

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rather than a solution based upon constitutional and legal principles.2 It served the

purpose of balancing conflicting interests in society, and providing solution to

problems, howsoever transient they may be. One obvious outcome of these legal

battles was the visible enhancement of the reputation and legitimacy of the process of

judicial review and increasing reliance upon the judicial process for resolution of all

kind of disputes. Thus, amenability of judicial review was no more a legal issue; it

had become a matter of judicial discretion.

Three of the most important decisions of the time are pertaining to the Bhopal Gas

. tragedy, the MandaI Commission report and the Babri Masjid - Ram Janma Bhumi

issue. These three cases unveiled the multi-layered texture of the Indian society as

well as the Indian judicial system where solutions that were invoked had far reaching

consequences on the socio-political and legal fabric of the country as a whole. These

cases throw light upon the challenges that were faced by the Supreme Court and its

capacity and strategies to deal with them. In another way these cases were a precursor

to the challenges that the judiciary had to face in the sphere of economic policy

making.

These three cases display three different dimensions of the decision making by the

Supreme Court. The Bhopal gas tragedy had provided the Supreme Court an

opportunity to redefine the principles of liability under law of tort, especially

involving giant multinational corporations, who operate on Indian soil; instead it

exposed the vulnerability of the Indian judicial system to hold the corporation liable.

In another sense the decision exposed the lack of preparedness of the Indian legal

system to deal with a new economic policy which emphasizes upon liberalization and

globalization. Instead of imposing stringent punishments, the court adorned the robe

of a deal maker, and not only prepared the final settlement of claims but also absolved

those responsible from all civil and criminal charges. However under public pressure,

the court had to clarify that criminal proceeding relating to the tragedy can go on.

2 Mehta, Pratap Bhanu. 2005. "India's Judiciary: The promise of Uncertainty," in Public Institutions in India: Performance and Design. Devesh Kapur and Pratap Bhanu Mehta eds. New Delhi: Oxford University Press.

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While the court evidently lacked the expertise to deal with the Bhopal gas tragedy at

the same time it was successful in striking a balance and finding a solution to the

politically charged issue of reservation. In Indra Sahwney v. Union of India3 the court

was called upon to find an amicable solution on reservation of seats for the other

backward classes. While issues on reservation have come before the court since

independence, it is for the first time that an issue of reservation for a non-determinate

class (the other backward class) was in court. Thus the case did not only require the

court to distribute the constitutional benefits in the form of reservation but also define

and determine the constituency to give that benefit.

The task involved exercise of discretion by the court as the Constitution did not

provide guidance so far as identification of other backward classes is concerned. In

such a circumstance it was left to the court to choose amongst the alternatives

provided by the legislature to decide the defining criteria for the creation of the "other

backward classes" Thus more than reservation of seats, this decision was about

creating a political class, which could assert its right to reservation on the

Constitutional plane.

In this matter the court attempted to strike a balance between reservation and merit

and enunciates the concept of creamy layer, which differentiates people from taking

advantage of reservation. It also held that there shall not be any reservation in super

specialties and most importantly the court held that reservation cannot exceed 50

percent limit. Thus in this case the court not only took it upon itself to decide as to

who belongs to other backward classes, it also struck a balance between, merit and

affirmative action. However the decision did not do very well with the policy makers

who immediately thereafter made constitutional amendments to undo some section of

the decision. That battle is yet to die down and a series of judgments along with

constitutional amendments have followed since then.

In contrast to both the above mentioned cases in the matter of Babri Masjid, the court

refused to entertain a request under the advisory jurisdiction. The terms of reference

asked the Supreme Court to determine whether Ram J anma Bhumi existed at the

disputed site or not. While refusing to intervene in the matter the court held that in

3 AIR 1992 SC 477

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matters of history and archaeology it shall not interfere. Thus the court refused to

render advice to the president on the matter.4

Notwithstanding the divergence of approaches adopted by the judiciary, in all three

cases the court was able to achieve enough time and space for anger and agitation to

calm down. Once the matter was before the court, the decisions of the court were

awaited by the agitating parties, thus the court was able to play the role of an

important safety valve in the democratic system and gained enormous importance in

the governance of the country. Further these cases showcased the interstitial nature of

judicial review and gave birth to a new phase in the exercise of such power where not

merely actions but also silences of judiciary contributed to the resolution of socio­

political issues. These three cases unraveled the fact that the judiciary as much reacts

to the moods and sentiments of people as any other branch of government. Further it

became apparent that the court is not merely guided by law, but also by the demands

of the time, expectations of people and the anticipation of the other two branches of

government. The Supreme Court has been able to carry out these divergent functions

primarily because of its unique positioning in the constitutional scheme where it can

shelter behind the concept judicial review to exercise discretion and impose self

restraint without undermining the position of judiciary. Thus the image of a neutral,

independent and impartial judiciary helps the decisions getting acceptability m.

society.

The above mentioned judicial creativities were primarily focused on civil and political

rights. Economic rights were occasionally interfered with, leading to uncertainties as

to the institutional independence of the judiciary. The constitutional history was

witness to the response of the Supreme Court to issues such as Zamindari abolition,

abolition of Privy Purse and the nationalization of banks. It was argued that in a class

society the judiciary like any other political institution is committed to the values that

dominate the ideological superstructure. In other words, the judiciary being a part of

the power structure, its independence is conditioned by the commitment to the power

4 This is in contrast to the Supreme Court entertaining the Ram Sethu issue, which also involves issues of religion and archaeology.

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structure; thus anti poor. 5 The anti-poor stand of the judiciary also became a matter of

concern for the Parliament. Members of parliament had expressed their anguish and

had discussed the method of appointment of judges. They had also expressed the need

to intervene in that process.6 This concern was further strengthened by the decision of

the Supreme Court to grant primacy to the Chief Justice in matters relating to

appointment of judges, which was a departure from the earlier views on primacy of

the executive in appointment of judges. 7

Thus the court not only assisted the other two organs by calming down anger in

society it gradually asserted its own position and power by ensuring its primacy on

appointing judges in the higher judiciary. During this time economic reforms was

introduced and cases challenging the new economic policy started pouring in the

Supreme Court.

Before we proceed further it is important to note that the Constitution of India defines

'law' 8in its widest possible sense. All those categories of laws can be checked against

the fundamental rights guaranteed in chapter III of the Constitution for their validity.

It is also evident from the above mentioned definition that law not only includes law

enacted by competent legislatures but also' includes within its fold delegated

legislation. For instance in Narayanappa v. State of Mysore9 it was held that 'law' .

would also include 'scheme'. In State of Madhya Pradesh, v. Manda~ar,1O 'resolution'

5 Gupta, Sohanlal Datta. 1997. "The Supreme Court and Indian Capitalism (1950-1967)." Indian Bar Review, 24: I &2, pp. 179~202.see at page 180. 6 Shukla, Rakesh. 2006. "Rights of the Poor: An overview of the Supreme Court." Economic and Political weekly, Sep, pp. 3755-58., at p. 3755 7 In S.P. Gupta v. Union of India, AIR 1982 SC 149 the court had conceded the power of appointment of judges to the executive and had accepted that 'consultation' with the Chief Justice does not mean concurrence and his opinion does not have any primacy as such. When matters were again raised before the court regarding the primacy of the opinion of the chief justice, the court readily accepted it and in the second judges case assured that consultation means concurrence and the opinion of the chief justice taken along with the two senior most judges of the court have primacy in the matter. In the third judges case decided in 1993 the court held that a collegiums of Supreme Court judges have to be consulted by the chief justice prior to reaching any decision. The collegium shall consist of four senior most judges of the Supreme Court. Notwithstanding the collegium requirements the primacy of the decision of the chief justice was maintained as against the executive supremacy. 8 Article 13 of the Constitution defines law for the purpose of protection of fundamental rights. Clause 3 (a) of article 13 states, "Law" includes any ordinance, order, byelaw, rule, regulation, notification, custom or usage that has the force of law. 9 AIR 1960 SC 1073 10 AIR 1954 SC 493

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was held to be 'law' and in R. Jacob v. State of Keraia,ll 'direction' was held to be

law for the purposes of part three of the Constitution. The rationale behind including

delegated legislation as law is that the exercise of power is legislative in nature

whether it is being exercised by the legislature or by a delegate. 12 Besides including

delegated legislation within its lap, it also includes sub-delegated legislation as well.13

Administrative orders made in pursuance of any statutory authority are also construed

as law unless the orders were not intended to be so.

Thus according to article 13 of the Constitution exercise of legislative power invites

judicial scrutiny irrespective of the authority exercising that power and the kind of

legislative instrument used for the purpose. Therefore ordinances passed by the

Governors and the President of India, (though they are executive authorities, making

ordinance is a part of the limited legislative function that they have been assigned to)

are also law. The rule making power of the Supreme Court, the powers exercised by

the district councils and regional councils to make law also comes under the umbrella

provision of 'law'. Since the definition of law is wide, any of such laws that have

been passed to give effect to economic policies could also be challenged in the court

of law.

Broadly speaking a policy could be challenged to be violative of the constitution or

any statutes made hereunder. The grounds of such challenge could be many, such as

lack of legislative competence, violation of fundamental rights, violation of any

existing law etc. Since measures of economic reforms have been implemented

through secondary legislations, the propriety of executive action can also be

challenged on the ground that principles of natural justice has been violated or

procedural impropriety is found. Violation of Constitutional provision is a valid

ground to invalidate statutes. In addition to this in a hierarchical system of law, if an

act is held to be unconstitutional, subordinate legislation made hereunder

automatically stands invalidated.

II AIR 1964 Ker 29 12 Franchisees Association v. Chief General Manager GTC, AIR 2005 Guj 141 13 UP. Shramik v. State, AIR 1960 All 45

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Further after the enunciation of the doctrine of basic structure, it has emerged as a

separate and independent ground for judicial review. The authority to strike down a

law has been provided in Article 13 (2) of the Constitution. Thus laws made after the

Constitution has come into being shall stand invalidated to the extent it violates the

fundamental rights. However in the past the legislature has protected the potentially

unconstitutional legislations by !nserting those laws in the 9th schedule to the

constitution, which is a territory beyond the applicability of judicial review. Of late

this schedule had started accumulating statutes of varied kind, including a number of

them dealing with regulating economy. In I.R. Coelho v. Union of India,14 the

Supreme Court has built judicial inroads into the 9th schedule as well on the ground of

violation of the doctrine of basic structure. Thus the scope of judicial review provided

in article 13 (2) has increased to include not merely violation of particular

fundamental rights but also the violation of the basic features of the constitution.

Besides legislative enactments the government often resorts to executive actions to

introduce reform. It is used not only because of the convenience that it provides in

implementing reforms, but also because of the ease with which this can be modified

without undergoing strict scrutiny as is the case of legislations, which has to attain

parliamentary approval. In view of the frequent resort to this method of implementing

economic reforms, Rob Jenkins has called India's economic reform to be "reform by

Stealth". He adds that even changes to the statutory law have been carried out

stealthily. Jenkins gives the example of gradual but meaningful changes to the State

Financial Corporation Act, 1951. Amendments to this Act were necessary to allow

divestment of stake in the development banks. Jenkin observes amendment to this Act

was done over a period of two years through numerous official notifications by the

Industrial Development Bank of India, the administrative agency under the Act and

not by the concerned legislature. 15

Similar strategy has been followed with regard to amending many other legislation.

For instance an indirect and gradual method was used to introduce reform in the

aviation sector. One of the key features of this sector reform was to introduce public

14 AIR 2007 SC 861 15 Jenkins, Rob. 1999. Democratic Politics and Economic Reform in India: Cambridge University Press. see Chapter II, Page 4.

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Economic Policies and Constitutional Adjudication since 1991

private partnership for the infrastructure development of the airports. Previously, the

International Airports Authorities Act of 1971 was regulating issues relating to

establishment of airports wherefrom international flights were operating. However

since that was an Act, which had created an authority under the law dismantling that

structure would have been difficult, thus to make space for private players in the

development of infrastructure the parliament chose an indirect route to amend the law.

In pursuance thereof the Airports Authorities Act was enacted in 1994, to transfer and

vesting of the undertakings of the International Airports Authority of India and the

National Airports Authority in the Airports Authority of India constituted for the

better administration and cohesive management of airports and civil enclaves whereat

air transport services are operated or are intended to be operated and of all

Aeronautical communication stations.

Further amendments were done in the year 2003 to provide for establishing and

assisting in the establishment of airports. The Act provided for the establishment of

private airport and section 2 (nn) therein defined a private airport as an airport owned,

developed and managed by any person or agency other than the authority or any state

government, or any person or agency jointly with the Authority or any state . government or both where the share of such person or agency as the case may be in

the assets of the private airport is more than fifty percent. Thus through gradual

amendments the government was able to create a place for private players in the

aviation sector which was till then an exclusive domain of the government.

In order to avoid the parliamentary approval for disinvestment of government's share

in the state run Oil and Natural Gas Corporation (ONGC), which was a creation of an

Act of parliament the government changed the statute of the corporation from a public

sector undertaking to a government company, vide the ONGC (Transfer of

Undertaking and Repeal) Bill, 1993. Consequently ONGC stood transferred to the

ONGC Ltd. Prior to transfer ONGC was in the list 'A' of the Industries Development

and Regulation Act, 1951, meaning thereby only government could do business in oil

and natural gas. Post economic reforms, this sector was taken away from the

monopoly sector and was opened to private players. In order to implement the policy

of deregulation this indirect route was felt to be necessary. Disinvestment was also

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effectuated in ONGC. After the conversion from a statutory corporation to a

government company 2 percent of its shares were divested through competitive

bidding. Equity base was extended by giving 2 percent equity shares to the

employees. By 1991, 10 percent of government holding in ONGC went to Indian Oil

and 2.5 percent went to the Gas Authority of India. Government holding was brought

down to 84.11 percent.

Many more similar changes have been brought in law in a gradual manner. As

mentioned above the rationale behind opting for delegated legislation in carrying out

economic reforms is that these are subordinate legislations and need not be passed by

parliament. Though there are provisions of "laying", that hardly raises the amount of

public scrutiny as enactment of a new Act or modifications in the existing statutes

does. Therefore, while examining the constitutionality of these laws, the courts do not

only have to examine the implication of the powers vested under these laws but also

the veracity of these laws themselves.

4.3. Adjudication and the New Economic Policy: Challenges and

Issues

In the background of the above gIven legal and constitutional developments the

Supreme Court had to decide cases emerging out of various facets of economic

reforms. These cases not only challenged the policy of economic reforms but also

posed questions about the method of carrying that out. The court was also faced with

a number of challenges especially regarding interpreting the constitution in a changed

environment. Since the Constitution was formulated and was later on molded (through

legislative actions and judicial interpretations) to facilitate greater role for state in the

economy of the country, the new economic policy posed various Constitutional

questions.

4.3.1 Challenges

A number of doubts were raised regarding the Constitutional validity of policy

measures. The text of the Constitution was itself seen to be incompatible with the new

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economic policies. 16 Especially the preambular commitment to socialism is seemingly

in contrast to the idea of private ownership and competition; even if private ownership

is not new to India, as India has followed the path of mixed economy since

independence. Arguments were raised that socialism is a part of the basic structure

and the new economic policy is in violation of socialism, thus stands in violation of

the Constitution. I7

Decisions to denationalize and loosen control over state monopolies, distribution of

state largesse, raises challenges to the reform process. While in the previous decades

the court had to balance individual rights against the state activity in the economic

sphere, post 1991 the gradual decrease in the role of state as an active actor in the

economy also posed multiple challenges. The new found role of the state as a

regulator was not without contentions.

A major challenge before the court was to choose between upholding and invalidating

a policy measure. If the court chooses to uphold the validity of reform process, it

would have to reverse many of its previous decisions and if the court chooses to

invalidate the process of reform, it could faced the wrath of the legislature in the form

of reversal of judicial decisions through amendments in laws, curtailment of its

power, interference of the executive in the process of appointment of judges and

possibly a popular mandate against the jUdiciary. 18

Another alternative approach for the judiciary was to adopt a denial mode. Here the

court could deny that the reform process is in contrast to the Constitutional principles

(both the text and the judicial interpretation to Constitutional provisions) and rather it

is in continuum with the earlier economic policy framework of the country. One of

16 Dam, Subhankar. 2005. "Vineet Narain v. Union of India - A Court of Law and not Justice: is the Indian Supreme Court Beyond the Indian Constitution?" Public Law pp. 239-48.see at p. 137. 17 In defence of the new economic policy it may be argued that socialism was inserted to the Constitution after the decision in Kesavananda Bharti v. State of Kerala, AIR 1973 SC 1461, which enunciated the doctrine of basic structure. Since basic structure doctrine is flexible in nature and subject to the interpretation and recognition of the judiciary it would be wrong to conclude that socialism is a part of the basic structure without the judiciary specifically holding it to be so. An argument to be the contrary can also be made that, since socialism is a part of the preamble and preamble is a part of the basic structure thus, socialism is also part of the basic structure. Nevertheless a petition has been filed in the Supreme Court contending that the new economic policies are contradictory to the philosophy of socialism and socialism is not guiding the economy anymore. Thus socialism should be deleted from the Constitution. Society for Good Governance v. Union of India is pending before the Supreme Court. 18 All these implications were experienced by the court in the past.

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the ways to explain the continuum could be the continuing faith on the goals of

economic justice that are yet to be achieved. The failure of the laws enacted to give

effect to planned model of development to attain the goals enshrined in article 38 and

39 could be said to be the reason why the new economic reforms can be justified

precisely on the same ground. By 1991 wide inequalities and disparities was still

persisting amongst a large number of people in India. 19 Thus attaining economic

democracy could be said to be the goal of the new economic policy as well.

This has been the approach of the legislature, which insists that the new economic

policy is a continuation of the Nehruvian ideals of attaining justice.2o But even this

strategy requires judicial creativity, which would be able to accommodate the

apparent changes into the inherent values which are embodied in the Constitution.

The inevitability of judicial creativity lies in the fact that the Constitution has many

provisions which directly or indirectly affects the economic policy formulation and

policies brings in realignment in jural relations between people and the state. Thus the

role of the judiciary is very important in carving out space for the current

developments without jeopardizing existing Constitutional structure.

4.3.2 Issues

Broadly speaking two kinds of issues have emerged in the context of economic

reforms, first challenges regarding the constitutional validity of these policies, and

second regarding the process of carrying out those polices. In the first category of

cases, the court is called upon to exercise the power of judicial review in policy

matters, which raises questions of justiciability, limits and approaches to judicial

review and the role of the court in economic policy matters. The second category of

cases raises questions regarding competence and limits of action of the legislature and

the executive besides numerous procedural infirmities that could be called in question.

Both these kind of cases shall be discussed in the following sections.

19 R. Sudarshan, Stateness and Democracy in India's Constitution; see page 172 in Hasan, Zoya, E. Sridharan, and R. Sudarshan eds. 2002. India's Living Constitution, Ideas, Practices, Controversies. Delhi: permanent black. . 20 Bhagwati, Jagdish and T.N. Srinivasan. 1993. India's Economic Reforms. New Delhi: Ministry of Finance, Government of India.

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These decision by the supreme court shall be analyzed from the perspectives of their

compliance with the constitutional obligations that has been cast upon the court, viz.,

protection of the fundamental rights of the people and striking down all such

legislative and executive actions that are in excess of their constitutionally assigned

limits. These obligations are to be found in article 1321, article 3222 and article 14223

of the constitution. Therefore limited reviewability of economic issues cannot be a

justification for reluctance of the court to uphold the Constitution. Moreover after the

enunciation of the doctrine of basic structure the scope of judicial review has

increases manifold, which now includes compliance with the letter as well as the spirit

of the Constitution.

In view of the main objective of this thesis cases have been selected wherein either

the question of constitutional validity of a policy or the implementation thereof have

been raised and such case should have arisen as a result of the economic reforms

introduced since 1991. Therefore the cases must have arisen between 1991- 2008;

from the beginning of the reforms process to the current date. The ground on which

the action of the legislature or the executive has been raised includes violation of

fundamental rights, violation of other constitutional provisions, violation of any

existing statute, incompetence of the legislature, excessive delegation etc.

4.4. Adjudication of Policy Issues

The economic reforms introduced in 1991 were a departure from the planned

economic development followed in the previous decades. Amongst the hallmarks of

the new economic policy was deregulation and denationalization. Emphasis was laid

on competition and efficiency. Private players including foreign players were

encouraged to take active part in economic activities. New sector specific policy

guidelines were issued. Three of such policy issues were contested before the court,

viz., the new telecom policy, the policy of disinvestment and the new industrial

policy.

21 Provides for judicial review oflegislative and executive action. 22 This article guarantees the fundamental right to move the Supreme Court in case of violation of fundamental rights. 23 The court is under an obligation to do complete justice as per Article 142 ofthe Constitution.

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The cases where these policy decisions of the govemment were challenged are the

Delhi Science Forum v. Union of Indiif4, Baleo Employees Union v. Union of India,25

and Zippers Karamchari v. Union of India26 case. In the first case the National

Telecom Policy was challenged, in the second case the disinvestment policy and in

the third case the policy of de-reservation of industries in the small scale sector was

challenged. Beside these three cases there have been many other cases where the

court has reiterated the principles laid down in these cases. This analysis shall help

explaining the scope and limits of adjudication in matters of policy.

4.4.1. Challenging the Telecom Policy

In 1993 the Finance Minister in his Budget Speech had announced the intention of the

government to encourage private sector involvement and participation in

telecommunication sector. These private sector players were expected to supplement

the efforts of the department of the telecommunications, and help provide services of

international standards. Accordingly the new Telecom Policy was announced in 1994.

In pursuance thereof necessary guidelines were issued and tender documents were

invited. Private participation was encouraged including foreign players, subject to a

capping of total foreign equity not exceeding 49 percent. However before licenses

could be issued to private parties, writ petitions were filled in a number of high courts,

which were brought together and disposed off in the case of Delhi Science Forum v.

Union of India. 27

This was one of the first cases after the introduction of the new economic policy

where a policy itself was challenged. It was contended that the policy undermines the

safety and security of the nation. It was also alleged that the central government does

not have the power to grant licenses to different non-governmental companies to

establish and maintain telecommunications system in the country.

The petitioners contended that the telecommunication sector was the exclusive

monopoly of the government and therefore the government cannot dispose it off in

24 (1996) 2 see 405 25 AIR 2002 se 350 26 1998 INDLAW se 632 27 (1996) 2 set 405

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favor of private entities. Thus objections were raised regarding the propriety of

granting state largesse. However the court rejected both these contentions and upheld

the validity of the policy.

The Supreme Court expressed its limitations to adjudicate upon policy issues.

According to the court privatization is a fundamental question regarding the power to

make economic decisions. The legislature is the right forum for such decisions to take

place. Once the policy is placed before the parliament and has received its assent, the

court cannot sit as a super-legislator to decide whether such a decision should have

been taken or not. Emphasizing upon the importance of deliberative democracy the

court held that parliament and not court is the proper place to put forth varying view

points and it is for a vigilant parliament to take policy decisions keeping the welfare

of people in mind.

The court relied upon the decision of R.K. Garg v. Union of India28 wherein the court

had refused to intervene in economic matters. In that case the Supreme Court had

relied upon Justice Holmes, who had observed that the legislature should be allowed

some play in joints as it deals with issues which is complex and do not admit any

doctrinaire or straight jacket formula. Economic policies fall into that category.

Therefore Justice Holmes advised the court to give judicial deference to legislative

judgment in the field of economic regulation, which may not be required in other

areas where fundamental human rights are involved. In a way Justice Holmes

advocated for the doctrine of preferred freedom where the standards of review for

violation of these rights differ. His views also echo the supremacy of the legislature in

taking policy decisions.

Another aspect of this decision is extending the principle of limited reviewability of

legislative actions on policy reforms to executive actions used to give effect to a

policy. Whereas in matters of legislative action, the court strongly presumes the

constitutionality in executive actions, the court used to analyze the jurisdictional

aspect of such action as well as the issues pertaining to reasonableness and non­

arbitrariness. However by extending the principles of limited reviewability, the court

28 (1981) 4 see 675

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has not only presumed the constitutionality of executive action, it has also

undermined the challenges to jurisdictional issues.

Although the court has expressed judicial deference on policy issues it has recognized

certain exceptions under which the court can review a policy decision. One of such

exception is the presence of a legal or constitutional bar in adopting a certain policy.

Besides the inability of the courts to pronounce upon policy issues which are based

upon the majority rule, there are also other considerations which have weighed

heavily in favour of non-intervention of the court. While upholding the validity of the

policy the court relied upon factors external to the legal system. The court was of the

view that the policy should be upheld because the overall economic scenario around

the world and the importance of the telecommunication sector for the economic

development of a nation depends to a large extent upon the telecommunication

infrastructure. Thus, in a world of constant intercontinental interactions quality of

telecommunication system is extremely important, and every effort should be made to

meet those standards. The court observed good quality service can be provided only

when there are more players and they are constantly competing with each other to

provide better service. In view of these realities the new telecom policy was held to be

valid. Thus the court relied upon the economic realities of the time instead of the

constitutional justifications as to why the government should retain or give away its

exclusive monopoly over the telecom sector.

Although the objective of the new telecom policy was to increase accessibility to

telephone there was no reference to the directive principles of state policy which

directs the government to distribute the material resource of the society that best

serves the iriterest of the people. Though competition and lack of concentration was

emphasized by the court that was in the context of the provisions of the telecom

policy, and those justifications were not based upon the directive principles of state

policy. Therefore there is a change in the grounds of justification.

The court also rejected the contention that the telecommunication policy itself was

unconstitutional. The petitioners contended that the rationale behind keeping this

sector exclusively with the government was the safety and security of the nation.

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Therefore the decision of the government to encourage private participation may have

counterproductive effect on the security of the nation. However the court suggested

that reliance should be placed upon the decisions of a vigilant parliament, which

should take decisions keeping in mind the interest of the public. The decision of the

court to uphold the policy and exercise limited review is reflective of the presumption

of the court that public policy invariably addresses public interest. This view has also ,

been relied upon in a number of other decisions.

Thus the new telecom policy was upheld by the Supreme Court on the ground that the

court is not the proper forum for such decisions and it is for the legislature to take

policy decisions. Policy decisions can be subjected to limited review by the judiciary,

however in all such cases where there is constitutional or legal bar to a policy the

court can intervene in the matter and examine the relevant policy. Although the court

primarily relies upon its institutional limitations, external factors such as the

necessities of a changing economy also influenced the decision of the court. In this

case the court did not hesitate going into the facts of the case instead stayed away

from constitutional justification of the policy,

4.4.2 Validity of the Policy of Disinvestment

The policy of disinvestment was initiated in 1991. The interim budget of 1991-92

stated that the Government would disinvest up to 20 per cent of its equity in selected

public sector undertakings in favor of mutual funds and financial or investment

institutions in the public sector. The objectives of the policy was to broad-base equity

and improve management of public sector enterprises. Later on the Industrial Policy

Resolution of 1991 declared that the government would divest its equity holding

whereby these enterprises can be subjected to further market discipline. The limits of

divestment in government holding were recommended to be increased by the

Rangarajan Committee. This committee recommended that the percentage of equity to

be divested could be up to 49 percent for industries explicitly reserved for the public

sector, in industries where dominant market share or separate identity had to be

maintained for strategic reasons divestment could be up to 74 percent and rest other

industries it could be 100 percent.

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It was recommended that the government should hold 51 percent or more equity in six

scheduled industries, which included, coal and lignite, mineral oils, arms, ammunition

and defense equipment, atomic energy, radioactive minerals, & railways. Though

these recommendations were not immediately given effect to the government decided

to set up a disinvestment commission which came into effect in 1996. This

commission in its second report submitted in 1997 recommended for the privatization

of Balco. Later on it was decided that 51 percent of the government's equity holding

shall be offered on strategic sale. This gave rise to a litigation filed by the employees

of Baleo. In Baleo Employees Union v. Union of India29, the policy of disinvestinent

was challenged and the question relating to amenability of judicial review was

raised.3o

In this case the court refused to exercise judicial review on economic policy matters.

The decision of the government was based upon a number of grounds, which includes

the following:

a) Disinvestment is a matter of complex economic decision and the court cannot decide

upon that. Courts lack of expertise to decide upon such issues.3)

b) The court should follow the path of refraining from intervening in such matters, since

past precedents suggest that policy matters cannot be intervened by court.

29 AIR 2002 SC 350 30 Prior to this case government enterprises were privatized, though such moves were not challenged before the court. This could be attributed to the 'stealthy' approach adopted by the executive to carry out such disinvestments. For instance the government had gradually divested its share in Maruti Udyog and the Japanese fIrm Suzuki was slowly been permitted to increase its joint venture equity participation from 26% to 40% and then to 50.2%. This gradual divestment had kept judicial scrutiny at bay. See Government's Policy of Double Faced Liberalization, The Indian Express, 1 st Dec 1993. 3) This view is sounded in many other cases. For instance in Peerless General Insurance & Investment Co. Ltd. v. Reserve Bank of India, 1992 Indlaw SC 332, the court held that, court should not interfere in economic policy as that should be left to the experts. Even experts could differ. Therefore court cannot be expected to decide then without even the aid of the experts. Similarly in Indian Thermal Corporation v.State of M.P, (2000) 3 SCC 379 the court refused to intervene in the matter relating to the decision of the government on the policy of "least tariff' because that decision is based upon the recommendation of the expert committee. Again in Ashok Smokeless v. Union of India, Appeal (civil) 5302 of 2006 the court insists that in the absence of any expert opinion on the working of the e-auction, it cannot be said to be unassailable. Since it has been proved to be violative of article 14, it can be declared to be un-Constitutional. Therefore the court recommends the government to set up an expert committee to do the necessary study and recommend accordingly. Thus the court heavily relies on the views of experts and accepts its ignorance in technical matters. See also Rishiroop Polymers Pvt. Ltd. v. Designated Authority & Additional Secretary; Appeal (civil) 773 of 2001, where the court relied upon the opinion of experts in a matter relating to anti dumping.

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c) Policy issues lack adjudicative disposition. In another sense the issue involved therein

is such that it is not suitable for adjudication. This is a subject matter specific

limitation, which prompts the court to refrain.

d) Economic policies also lack adjudicative disposition because such decisions are based

upon economic expediencies, the necessity and validity of which cannot be

determined by the court.

e) In Economic matters a government should be given some play in joints and more

importantly the right to "trial and error".

f) The court refused to become an approving authority for government policies. It is for

the representative of people to take policy decisions and the unelected nature of the

judiciary pulls it back from meddling with or upsetting the decision of the

government.

g) It has to be presumed that the actions of a responsible government are directed

towards protection of public interest.32 And public interest is not a static concept, it

keeps evolving. It is up to the wisdom of the government to run a business enterprise

as it considers fit.

h) The court can intervene in the policy decision only when there is malafide or the

decision is in contravention of any statute or the Constitution or the decision is

abhorrent to reason, or the decision is such that no reasonable man would have taken

such a decision. However alleged violation of fundamental rights resulting due to

divestment of Balco (which was a public sector enterprise and therefore a "state"

under article 12 of the Constitution, which shall no more remain as a "state" after the

disinvestment is given effect to) cannot be a valid ground to vitiate the policy

decision in question.

The above mentioned justifications are far ahead of the decision of the Supreme Court

in Delhi Science forum. While in the Delhi Science case the court had recognized

limited reviewability of policy issues and compared that with the limited reviewability

of legislations, in Balco the court further narrows down the scope of judicial review.

While in the case of Delhi Science Forum it was held that the legislature should be

given some play in joints in economic matters, in Balco case the court extended the

scope of legislative freedom and observed that it should have complete freedom to

32 It is established since long that the intention of the legislature cannot be doubted unless it is proved otherwise. It is not for a court of law to presume that the parliament has enacted a law with bad intention in mind. It is held to be the case in A.K. Roy v. Union ofIndia, (1982) 1 see 271; Nagaraj v. State of A.P., (1985) 1 see. 523, Gurudevdatta v. State of Maharashtra, (2001) 4 see 534.The presumption of bonafide can be attributed to the supremacy of the legislature.

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undertake experiment of trial and error in economic matters. Thus gradually there has

been an· erosion of the scope of judicial review, and simultaneous increase in

legislative freedom to make policy decisions of its choice.

Another development has been in the sphere of the carving exceptions. While the

court recognizes that violation of fundamental rights shall call for judicial

intervention, in the present case, the court distinguishes between the Constitutionally

guaranteed rights to people and judicially recognized rights and Constitutional

protections and observe that people falling into the latter category cannot claim an

absolute fundamental right, which could be said to be capable of vitiating a policy

decision of the government. The vulnerability of this kind of Constitutional protection

shall be discussed in detail in the next section where we shall anal yze the process of

implementation of policy decisions and the allegations of Constitutional violations.

4.4.3. Validity of Policy of De-Reservation

The third important case where a policy of the government was challenged is Zippers

Karamchari v. Union of India33• In this case, the policy of de-reservation whereby

industries hitherto reserved for the small scale sector was permitted to be de-reserved

was challenged on several grounds.

In accordance with the Industrial Development and Regulation Act, 1951 zip fasteners

industry was reserved for small scale industries. In 1986 exceptions were carved out

in the said sector and integrated plants to manufacture zip fasteners were de-reserved.

Under this policy exclusive rights were given to the Y.K.K. Corporation of Japan to

set up an integrated zip fasteners plant. The petitioners alleged that the permission

granted to YKK for setting up integrated plant for manufacturing metallic and non­

metallic zip fasteners in India and the Notification No.S.O. 309(E) dated 30th May,

1986 should be quashed besides declaring that the new industrial policy of 1991 is in

violation of the Industries (Development and Regulation) Act, 1951. This is because

contrary to the policy of protection of small scale sector, the industrial policy of 1991

envisaged de-reservation. Further the permission to set up the plant with 100%

foreign equity capital and without any export obligation was contended to be violative

33 1998 Indlaw SC 632

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of the policy itself, which specifically aims at encouraging foreign investment, access

to high technology and world markets. Therefore the permission without any export

obligation was contented to be violative of the industrial policy resolution.

The petitioners also contended that since the said policy decision allows establishment

of an integrated plant there will loss of job for laborers working in small scale

industry. It was alleged that if the permission is given effect to then it shall adversely

affect approximately 45,000 laborers who were· employed in the zip fasteners

industry.

In this case there were two sets of opinions, both concurring but separate. Justice

Kurdukar spoke for himself and also for justice Agarwal and Justice Rajendra Babu

concurred with the above decision but preferred writing a separate opinion. Whereas

justice Kurdukar did not speak about the violation of the industrial policy resolution

and the scope of reviewability of policy decisions, justice Rajendra Babu did state that

in matters of trade and commerce or economic policy, the wisdom of the government

must be respected. He explained that the court should not lightly interfere with a

policy decision unless the policy is contrary to the provisions of the Constitution or

any law. The court can also intervene when the policy itself is arbitrary in nature.

Unless these conditions are present the court should refrain from intervening in policy

matters.

Instead of focusing on the scope of judicial review the court preferred referring to

various reports, statements, fact and figures to conclude that the permission so granted

is legally valid and there has not been any violation of the industrial policy. The court

observed that since access to high technology or access to world market can be

attained alternatively achievement of any of those purposes by the YKK Corporation

would be enough to satisfy the requirement of the industrial policy resolution. It is

apparent from these observations that the court has taken the validity of the industrial

policy for granted and has proceeded to enquiring whether the policy has been

properly implemented or not.

The court observes that the company has vast experience in the field of manufacturing

zip fasteners all over the world and they use high technology to produce zippers. Even

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the Indian exporters and manufacturers use zippers made by YKK to meet the

standard required in international market. Further the court states that counterfeiting

of YKK brand in India is rampant and many international buyers insist on having

YKK zippers. Many suppliers of garments from India have spoilt their brand name as

they have used counterfeit brands from India. The court holds that having regard to

the quality and worldwide reputation of YKK the company would be able to provide

access to world market as expected in the industrial policy. Therefore the permission

granted to YKK is neither illegal nor contrary to the industrial policy resolution 1991.

Thus the court relied upon 'business prudence' to uphold the permission so granted.34

This case stands out because the court had made sweeping remarks about access to

technology and has held that integrated plant is a separate class altogether. This

conclusion was reached even though there was neither any discussion on the doctrine

of classification nor on article 14 per se. There was also no specific response to

allegation of joblessness that will result due to the establishment of the plant. 3S The

Industrial Regulation and Development Act, 1951 under which reservation and de­

reservation of industries takes place states that de-reservation can take place only if

that will further public interest. In this case the court presumes that the policy as well

as the permission is aimed at serving "public interest". However due to the flexibility

associated with interpreting 'public interest', this test emerges as a weak and elastic

test to examine the validity of the policy.

The court "incidentally" mentioned that an investment of 90 crores has been made by

the YKK Corporation and therefore any change in the terms and conditions of the

approval at that stage would lead to several legal complications. Therefore the court

opines that the validity of the policy should be upheld.

34 Contrary to this, in Ashok Smokeless v. Union of India, Appeal (civil) 5302 of 2006 the court categorically observes that, Constitutional obligation to attain social and economic justice has to be given priority by the government while undertaking economic activity and not business prudence or sheer profit motive. The court held, "'Business' is a word of wide import. It, in the context of application of a statute governing a monopoly concern and also with an essential commodity, would indisputably stand on a different footing from the business concern or a private person. The Central Government as also the coal companies having regard to the provisions of the Nationalisation Acts must be visualized not as profit earning concerns but as an extended arm of a welfare State. They are expected to harmonize the business potential of a country to benefit the common man." 35 In PUDR v. Union of India, (1982) 3 SCC the court had mandated that non-observance of labour

. laws itself amount to violation of article 21 and 23 of the workers.

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Thus while the court states that policy decisions are beyond judicial review,

nevertheless it has referred to facts and business realities pertaining to the zip fastener

industry in detail to validate and effectuate the policy in question. This epitomizes the

disparity between the stated position and the practice by the court. With the decision

in Zippers Karamchari there is growing evidence that the court maintains an

apparently non-interfering stand so far as policy issues are concerned. It has presumed

the validity and constitutionality of the decision of the government. It is also assumed

by the court that such decisions are in the interest of the public. Therefore this

decision suggests that non-intervention of the court actually amounts to acceptance of

the validity of the policy.

4.4.4 Trends in Adjudication of Policy

The major trend thus far has been the reluctance of the court to intervene in policy

matters. This approach has been followed in a number of cases that have arisen as a

result of the new economic policy. Another major trend is that the court has reiterated

certain reasons as to why it should not exercise judicial review. In this section we

shall focus on both these trends.

A. Limited Reviewability as a Precedent

The approach of the court in the above discussed cases has been followed in a number

of cases. However the concept of limited reviewability has been modified depending

upon the facts and circumstances of a given case. The cases, where the Ba1co, Zippers

Karamchari and Delhi Science forum has been relied upon include, the Cellular

Operators Association of India v. Union of India,36 Bhavesh D. Parish v. Union of

India37, All India ITDC Workers Union v. ITDC, 38 Reliance Airport Developers Pvt.

Ltd. V. Airports Authority of India Ltd.,39 Reliance Energy Ltd v. Maharashtra State

36 2002 Indlaw SC 1576 37 AIR 2000 SC 2047 38 2006 Indlaw SC 887 39 2006 Indlaw SC 913

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Road Transport Development Corporation4o, Centre for Public Interest Litigation v.

Union of India41, Indian Thermal Power Ltd. State of M.P, BPCC Mazdoor Sangh42

•

While the court has consistently maintained that policy issues lack adjudicatory

disposition, it has reprimanded the tribunal set up under the Telecom Regulatory

Authority Act, for refusing to intervene in a policy issue. This was the position of the

court in the Cellular Operators Association of India v. Union of India.

In this case the Cellular Operators Association had assailed the decision of the

government as well as the recommendation of the Telecom Regulatory Authority of

India allowing fixed service providers to offer WLL with limited mobility to be

against the National Telecom Policy of 1999 as the Policy did not contemplate WLL

with limited mobility. It was further argued that the fixed service providers are getting

undue privilege as they are not being made to pay spectrum charges or entry fees and

did not have to face bidding process, and the government has failed in providing a

level playing field to the appellants. Therefore the decision of the government is

arbitrary and whimsical.

However while refraining to pronounce upon the validity of the policy the tribunal

observed that the object of the National Telecom Policy, 1999 and the purpose behind

switching away from duopoly is to encourage competition and to increase te1e-density

in the country as well as to provide service to common man on an affordable price.

Since allowing WLL with limited mobility will make it possible to provide cheaper

telephone services to the consumer, and will be useful in implementing the policy of

increasing tele-density, the decision of the government should be upheld. Further this

being a policy decision of the government this cannot be interfered with. Here again

the court presumes the validity of the policy and rather focues on the approaches to

implement the policy.

In this case the major contention of the petitioners was that the Tribunal set up under

the Act had refrained to look into the contentions of the petitioners. They were

contending that they have been deprived of level playing field. However instead of

40 Appeal (civil) 3526 of 2007 41 Writ Petition (civil) 171 of 2003 42 (2000) 3 see 379

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Economic Policies and Constitutional Adjudication since 1991

paying heed to their contentions the Tribunal held that policy matters are beyond

judicial review.

It is interesting to note that even though the Supreme Court refrains 'from intervening

in policy matters, however in this case the Court reprimands the tribunal for

abstaining to look into a policy decision of the government. The court held that the

tribunal is especially empowered to intervene in the matter and thus it should not have

abdicated its responsibility under the Act. Since the level of intervention depends

upon the extent of jurisdiction enjoyed by the tribunal and in this particular case, the

Tribunal was created with a view to instill confidence amongst investors, and to create

a level playing field between public and private operators, the tribunal does enjoy

original jurisdiction as well as appellate jurisdiction. In view of the huge mandate,

exercise of self-restraint by the tribunal was uncalled for. In a way the court has

distinguished between refraining to intervene and abdicating ones responsibility.

Similar questions may be raised regarding the propriety of judicial self restrain with

regard to policy matters which amounts to abdication of duty by the Supreme Court,

which is constitutionally ordained. Thus the presumption of validity of all executive

action amounts to abdicating duty under article 13 of the constitution. The court has

preferred abstaining from policy decisions, or has tacitly intervened to confirm the

legislative policy and executive action. This is evident from the factors that have been

considered by the court in the case of Delhi Science Forum, the BaleD case as well as

in Zippers Karamchari to come to the conclusion. The decision of the court to refrain

to intervene has resulted in upholding the decision of the government.

This case is evident of the fact that the court continues to hold that the scope of

judicial review, is limited. However if a statute specifically contains provisions

enabling judicial review of policy decisions, that should not be abdicated. Thus the

court has been able to carve out another exception to the limited reviewability of

policy issues. Further unlike the Balco disinvestment matter, In this case the court

does not take the presumption in favor of the decision of the government being in

"public interest" as an absolute prohibition on judicial review. Notwithstanding such

presumptions judicial review can be exercised on all executive actions. Thus in this

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case the court widens the scope of judicial review, remaining within the basic

argument of limited reviewability.

A contrary view is held in Centre for Public Interest Litigation v. Union of India43

where the court observes that since change is inevitable, changes in the economic

policy cannot be condemned on the basis that it is detrimental to common good. In

other words no change should be challenged on the ground that it violates numerous

rights of people or is against law. Thus the court gives a sweeping protection to any

change that is brought in the economic policies of the country.

From the above discussion it is evident that by and large there is a consensus on

limited reviewability of policy matters. There is also a general agreement that

economic matters invite less strict standard of review and thus the government is free

to take any policy decision as it thinks fit. There is broad consensus on the reason as

to why the court should not exercise judicial review in economic policy issues. These

reasons include the lack of required time and knowledge, demands of efficiency and

expediency, lack of adjudicatory disposition of policy issues, the doctrine of

separation power etc. In the following section we shall discuss some of these concerns

as it has been expressed in numerous decisions of the court.

B. Lack of Knowledge

Many a times the Supreme Court has refrained to exercise judicial review on the basis

that courts are not experts on every subject. Therefore judges should pay heed to

expert opinion and refrain from intervening with economic policies, which are based

upon expert knowledge and involve complex issues.

In Cellular Operators Association case as well as in a number of other cases the court

has expressed its reluctance to intervene in policy matters as the court fmds its,elf

incompetent or ignorant of the necessary skills and knowledge that are required for

framing policy decisions. The incompetence arises from the fact that, judges are

experts in law and not in any other technical subjects; therefore their knowledge as

well as understanding on a technical issue is limited. For instance in Bhavesh Parish

43 AIR 2003 SC 3277

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Economic Policies and Constitutional Adjudication since 1991

v. Union of India,44 the court refrained to intervene with a policy measure which was

formulated after due deliberation amongst banking and legal experts.

In this case the petitioners contended that, a notification issued by the Reserve Bank

of India violates their fundamental right to equality and the right to carryon trade and

business as it prohibits private persons from receiving deposits, except from their

relatives. The petitioners were of the view that, since they are shroffs and are

traditionally involved in the business of money lending, and operate through open

current accounts, whereby they receive deposits and also lend money therefore the

said notification violates their fundamental rights.

The court held that, the notification of the reserve bank was issued as a measure to

regulate money laundering and discourage private unincorporated firms from

receiving deposits and duping innocent people. This notification was construed to be a

reasonable restriction as per article 19 (6). The court primarily relied upon the expert

committee set up by the government to recommend measures on banking reforms, and

held that since an expert committee has recommended these measures, it cannot be

interfered with by the court. Therefore neither article 14 nor 19 (1) (g) rights of the

petitioners are said to be violated.

In this case reliance placed upon the reports of the expert committee is remarkable.

Such recommendations were held to be sufficient to uphold the reasonableness of the

restriction. Notwithstanding the decision of the court regarding the reasonableness of

restriction, it may be noted that there is a marked difference in approach between the

courts now and that of the previous decades where socialistic vision of society was

considered as a sufficient ground to uphold restrictions upon individual freedom to

carryon trade and business of one's own choice. For instance Justice Krishna Iyer in

Fateh Chand v. State of Maharashtra45 had relied upon the socialistic vision of the

Constitution to uphold the move by the central government to abolish the system of

money lending at the informal level by village money lenders and had held that, such

money lending which leads to exploitation of the poor cannot be said to be protected

under article 19 (1) (g) Constitution.

44 AIR 2000 se 2047 45 (1977) 2 see 670

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Reliance has been placed on the recommendations of expert committees in many

other cases as well.46 Besides lack of expert knowledge on policies the Supreme Court

also functions within a system which is considered to be not conducive for policy

decisions. For instance in India an adversarial system is in existence where two parties

put forth their contesting claims; they argue and adduce evidence in favor of their

contentions. The judge has to decide the case according to the law that is said to be

violated and the claims that are set before the court. Generally courts are not expected

to go beyond the material that is adduced before them. In such circumstances courts

have only two voices on a given issue and very limited material pertaining to the issue

in a given case. Therefore in terms of arguments and material and alternatives judges

have limited choices. With that limited choice it is difficult for the judge to choose a

policy decision which affects the interest of large number of people. Thus the court

adheres to expert opinion as there are inherent limitations to judicial intervention on

policy decisions and the court does not want to supplant the feel of the expert with its

ownjudgment.47

C. Efficiency, Expediency and Cost overrun

One of the reasons for the reluctance of the court to intervene in policy matters is the .

concern for efficiency and expediency in effectuating a policy decision. Here it may

be noted that the judges have not defined 'efficiency' nor have they discussed the

methods and means of arriving at an efficient solutions. Nevertheless they have used

this term to express their general concern for the implementation of policies and

projects in accordance with the plans and sched,lle as drawn up by the policy makers.

Therefore here efficiency has to deal with schedules, costs and plans rather than the

efficacy of the result. Court's understanding of 'efficiency' is also evident from the

numerous observations that have been made by it. For instance in Zippers

Karamchari case and in Balco disinvestment case the court has referred to the cost

involved in the project and has observed that any intervention by the court will result

in escalation of cost, and therefore the court should refrain from intervening.

46 Union of India and Ors. v. Dinesh Engineering Corporation and Anr, 2001 Indlaw SC 21141, Ms. Shri Sitaram Sugar Co. Ltd v. Union of India AIR 1990 SC 1277, Gupta Sugar Works AIR 1987 SC 2351, Tata Iron and Steel Company v. Union of India, 1999 Indlaw SC 2229 47 Cellular Operators Association v. Union of India, 2002 Indlaw SC 1576

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In a number of cases where economic policies are contested, the court has refrained

from intervening in the matter as that would have delayed the implementation of the

policy. A recent example is the denial of the Supreme Court to interfere in a

notification issued by the government banning export of basmati rice from the

country. Since the ban was imposed to avert a serious food crisis in the country, the

court did not intervene in the matter. The notification was contested by exporters of

rice on the ground that because of the said notification they were forced to stop

exporting rice, which has adversely affecting their export obligation. They pleaded

that the ban should be partially lifted to give them some relief. However the court

decided in favor of the government policy on grounds of expediency. This decision

came as a relief to the central government which was facing difficulties managing the

rising inflation and a steep increase in the prices of essential commodities.

Does this reflect that policy decisions are for the legislature to take and the judiciary

should not intervene in those matters? Who decides what policy is in the interest of

the public? These are complex questions of public policy which needs to weigh

competingcIaims of efficiency on the one hand and justice on the other. A further

analysis of the cases that have arisen as a result of the new economic policy will be

useful. The court has taken similar position in many important cases where the new

economic policy has been challenged. We shall begin with the Baleo disinvestment

case.

In Baleo Employees Union v. Union of India48, where the policy of disinvestment was

challenged, the primary question before the court was whether the policy of the

government to disinvest its share in Baleo can be challenged, and whether economic

policies are justiciable in nature. Besides upholding the decision of the government on

disinvestment, the court also observed that on the grounds of economic expediency

the court should not interfere in policies of economic reforms. The court categorically

observed that, " ... economic expediencies lack adjudicative disposition and 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

48 AIR 2002 SC 350

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would decline to interfere." In other words the court can refuse to interfere with

policy decisions purely on the ground that economic expediency demands so ..

Similarly in Oil and Natural Gas Commission v. Association of NGC Industries49the

court upheld the right of ONGC to determine the price at which it will supply gas.

The court did not bind its freedom on the ground that it is a 'state' and has

constitutional obligations to comply. In this case ONGC entered into contracts to

supply gas to certain industries. However after the expiry of the contract ONGC

revised the rates and was ready to give gas only on the new r~te. However ONGC

being a state under article 12, it was contended that the ONGC should provide gas in

the same rate as before until new contract is made. Though the high court relied upon

article 12 and held that ONGC should continue to supply in the same rate, when the

matter was brought before the Supreme Court, the court held to the contrary and

observed ONGC was not bound to supply gas in the old rate, merely because it is

'state' but it is free to determine the price taking into account relevant considerations,

including concerns of profit.

A different view is taken by the court in Ashok Smokeless v. Union of India,5o where it

refused to uphold the use of e-auction to determine coal price on the ground that it

will fetch better price for coal or it will give other operational benefits. The court was

of the view that even if there are advantages of e-auction, the court cannot decide the

case only on that ground as the court is primarily concerned with the constitutionality

thereof." Notwithstanding numerous advantages of the method, the court refused to

uphold e-auction of coal, merely on the grounds of efficiency, and profit that will

ensue to the public sector enterprise. However this decision seems to be an exception

as the court has generally deferred to the policy decision of the government based

upon the arguments of efficiency and expediency. The court has also elaborated upon

the stages of a policy decision and the permissibility of judicial intervention in those

different stages.

49 AIR 1990 SC 1851 50 Appeal (civil) 5302 of 2006

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Economic Policies and Constitutional Adjudication since 1991

In Narmada Bachao Andolan v. Union of India51 the court has elaborated upon the

need for judicial deference to the decision of the executive on the ground of efficiency

and expediency, especially if the issue contested after a certain stage. While

explaining the stages of policy formulation at which the judiciary may intervene, the

Supreme Court observed that there are three stages with regard to the undertaking of a

project first is conception or planning second is decision to undertake the project and

the third is the execution of the project. The conception and decision to undertake a

project are to be regarded as a policy decision. Once such a considered decision is

taken the proper execution of the same should be undertaken expeditiously. The court

states, it is for the government to decide how to do its job. It has to put up a system

that should not be arbitrary. Then the only role which a court may have to play is to

see that the system works in the manner it was envisaged. It is not for the court to sit

in appeal over policy decision, because the courts cannot run the government nor can

the administration indulge in abuse or non-use of power and get away with it.

Thus according to the court, out of the three stages in which a project is undertaken

the court is concerned only with the third or the last stage. Since that stage deals with

implementation of the project and it is the responsibility of the court should only

ensure that the project is properly implemented. However, in contrast to this view, it

is well accepted that the role of the court is to resolve contested issues within the

framework . of law and the Constitution and not really looking after the

implementation of an infrastructure project. That is the work of the executive. Thus it

is evident that in case of contested policy issues the court perceives its role to be

confined to overseeing the implementation of a project, whereas judicial review is

justified on the grounds of protection of fundamental rights of people and striking

down excesses committed by the legislature and the executive. In view of this the

Supreme Court is under a great constitutional obligation to work as a sentinel of

values of the Constitution and the rights of people.

In this case the court is of the view that if any petition is filed after the execution of a

project has begun, that shall be thrown out at the very threshold on the ground of

latches if the petitioner had the knowledge of such a decision and could have

51 (2000) 10 see 664

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approached the court at that time. The rationale for rejecting the petition is - after the

execution of the project has begun, any judicial intervention shall lead to overrun in

costs. In Balco case as well an indirect attempt was made by the court to introduce the

doctrine of latches. In that case the state government was reprimanded by the court to

not to intervene in the process of disinvestment. The court also denied a right to be

heard to the state government, on the ground that already two years had elapsed since

the process of disinvestment has commenced and the government has not raised any

objection. Therefore it cannot raise any objection thereafter.

The right to approach the Supreme Court in cases of violation of fundamental rights is

itself a guaranteed fundamental right.52 Even though the Constitution provides so,

Supreme Court has invoked the application of doctrine of latches, which thwarters the

enjoyment of article 32. The court had invoked the doctrine in the past in Tirlokchand

Motichand v. H.B. Munshi53 case, where the court held that, right to approach the

court is not absolute in nature and is subject to doctrine of latches. However this

decision was severely criticized for having expressly undoing what the Constitution

provides.54

Instead of strictly following the doctrine of latches in public policy issues the court

should weigh the competing claims and take a decision which will best serve the

common good. This view has been taken by Justice Verma in Dr. Kashinath G. lalmi

v. The Speaker, 55 In this case Justice Verma observes that, a survey of the cases

where the doctrine of latches has been applied shows that, the importance of the

doctrine lies on the sound policy of protecting public interest. In most of the cases, it

has been applied where an individual asserts his rights vis-a-vis another individual,

and not where public interest is pitted against private interest. Further he also explains

that different public interests should be weighed and examined in order to find out

whether application or the absence thereof serves the purpose best in a given case.

Where non-application of the doctrine of latches shall lead to more harm than benefit

to public interest, in such writ petitions the doctrine should be applied.

52 Article 32 53 AIR 1970SC 898 54 Upendra Baxi, Laches and the Right to Constitutional Remedies: Quis Custodiet Ipsos Custodes?, in the LL.B. Reading Material on Jurisprudence, Campus Law Centre, Delhi University. 5') (1993) 2 SCC 703

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Delay in the implementation of policies occurs not only when parties come late before

the court and dispute the decision by the government, but also when the matter takes

time to get decided in the court of law. Parties may also adopt delaying tactics in court

which may further hamper the implementation of policy. In order to avoid any delay

in court the Supreme Court in Raunaq International Construction Ltd. V. IVR

Construction Ltd.56 imposed a strict condition on challenges to developmental

projects. The court observed where policies and projects are challenged and interim

order is asked for that may lead to cost overrun. Therefore "The party at whose

instance interim orders are obtained has to be made accountable for the consequence

of the interim order. The interim order could delay the project, jettison finely worked

financial arrangements and escalate costs. Hence the petitioner asking for interim

orders in appropriate cases should be asked to provide security for any increase in cost

as a result of such delay or any damages suffered by the opposite party in

consequence of an interim order. Otherwise public detriment may outweigh public

benefit in granting such interim orders."

Similarly in Balco the court concludes that, no ex-parte relief by way of injunction or

stay especially with respect to public projects and schemes or economic policies or

schemes should be granted. It is only when the court is satisfied on valid grounds that

there will be irreparable and irretrievable damage can an injunction be issued after

hearing all the parties. Even then the petitioner should be put on appropriate terms

such as providing an indemnity or an adequate undertaking to make good the loss or

damage in the event the PIL filed is dismissed. Court has also been observing that PIL

as a strategy cannot be employed to challenge the policy of economic reforms.

4.4.5 Method of Challenging Policy Issues: Is Public Interest Litigation The Best Method?

A policy decision is given effect to by bringing in necessary amendment in the

Constitution, enacting or amending the relevant legislation, or by devising policy

measures expressed through executive action. Whatever may be the mode of

expressig and implementing a policy, if that gives rise to grievance, which can be

addressed as per law the same can be brought before the appropriate court for

56 (1999) 1 see 492

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necessary redressal. There could be several ways by which a decision of the

government could be challenged. One of the ways is to approach the court vide public

interest litigation.

Since its inception in late nineteen seventies this method has been successful in

addressing issues of varied hue and color including policy matters. Courts have been

open about their active involvement in evaluating the social and economic policies

and the functioning of various governmental bodies in carrying out their obligations in

that regard. PIL as a strategy has been justified on the ground that there are

inequalities in societies leading to deprivation of varied kind, which also includes

denial of access to justice.57 The proactive role of the court had institutionalized PIL

in the adjudicatory process of India and had encouraged many to take up matters that

concerned the well being of people in general.

In view of the changing perception of the court towards the role of judges in general

and the need for judicial intervention on a number of policy issues is it viable to rely

only on this method. Thus in this section we shall focus on the response of the court

towards public interest litigation in the backdrop of the economic reforms and

examine the viability of this strategy to address policy issues. We shall also explore

whether the new economic policy is influencing the response of the judiciary towards

public interest litigation.

In order to fully appreciate the importance of public interest litigation as a strategy to

challenge governmental decision making, it is essential to briefly mention the special

features of public interest litigation, which makes it attractive as a strategy in the first

place. These features could broadly be said to include, innovations on the issue of

who can address the court, what can be agitated before the court and. finally what can

the court offer as a remedy. Revolution in these three basic aspects of litigation has

been responsible for the popularity of public interest litigation as a strategy.

57 The supreme court in Bihar Legal Support Society v. Chief Justice of India (1986) 4 SCC 767 observed that, "the majority of people of our country are subjected to denial of access to justice and overtaken by despair and helplessness they continue to remain victims of an exploitative society where economic power is concentrated in the hands of a few and is used for perpetration of domination over large masses of human beings.

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The court has also justified this relaxed locus standi on the grounds of attaining a

socialist society in India,58 and the ground that, rules of private law adjudication may

fall short in public law adjudication addressing issues of public interest. Thus, the

relaxed locus standi brought significant changes in the process of adjudication. This

facilitated the move by concerned individuals, people's rights organizations, and

registered societies to ~ring before the court matters affecting the common man.

However, this comes with certain conditionality.

First, a person who comes before the court should come with clean hands. He should

not have any personal axe to grind. He should not be a busy body but should be a

public spirited person. Second the cause that is broUght before the court should be

such that it affects the public interest. What is public interest and what is private

interest has been elaborated upon by the Supreme Court. 59 Third it should be for

people who due to their various incapacities are otherwise not able to bring the matter

before the court. If these conditions are fulfilled, then the court in exercise of its

epistolary jurisdiction does not hesitate to provide innovative remedies, including

providing compensation on writ jurisdiction.

The development of PIL is evident of the fact that justiciability as a concept is not

fixed and rigid. Rather it is subject to chang~ and is also subject to the exercise of

discretion by the judiciary. In other words justiciability comes in where judicial self-

58 In Janata Dal v. H.S. Choudhury, (1992)4SCC305 the Supreme Court succinctly explained "the expanded role of courts in the modern 'socialist' state and the new demands for judicial responsibility; the rise and growth of varied systems of judicial review and the legitimacy of such development; the emergence of the notion of 'access to justice' as a judicial answer to egalitarian ideals and demands for effectiveness, and the development of PIL, and the role of courts in promoting the legal system in the arena ofPIL. The relentless efforts taken by courts in meeting all those challenges, in fact, strive for an 0f,timality in which the interest of the least advantaged is given an overriding priority." 5 The Supreme Court Practice and Procedure handbook enumerates what constitutes public and private interest. (i) The matters of public interest: Generally they include (i) bonded labour matters, (ii) matters of neglected children, (iii) exploitation of casual labourers and non-payment of wages to them (except in individual cases), (iv) matters of harassment or torture of persons belonging to Scheduled Castes, Scheduled Tribes and Economically Backward Classes, either by co-villagers or by police, (v) matters relating to environmental pollution, disturbance of ecological balance, drugs, food adulteration, maintenance of heritage and culture, antiques, forests and wild life, (vi) petitions from riot victims and (vii) other matters of public importance. (ii) The matters of private nature: They include (i) threat to or harassment of the petitioner by private persons, (ii) seeking enquiry by an agency other than local police, (iii) seeking police protection, (iv) land lord tenant dispute (v) service matters, (vi) admission to medical or engineering colleges, (vii) early hearing of matters pending in High Court and subordinate courts and are not considered matters of public interest.

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restraint gives in. PIL has touched upon all aspects of life and now includes litigation

for individual rights, group rights and cause-based litigations. It all started with pro­

poor decisions6o, and then gradually shifted towards unearthing corruption61 and

inaction in the other branches of the govemment62 and fmally PIL determined the

future of various policy measures63•

The impact of PIL has been far reaching. The court was not only able to tilt the

balance of institutional space of judiciary the but also was able to redefine its and the

matters that can be brought before the court for adjudication. This growth has had

repercussions on the sphere of activity of other organs. PIL is a clear example of

judicial activism, which goes beyond the doctrine of strict separation of power.

However until recently that has hardly created many ripples at the level of

institutional propriety. By and large PIL is justified and also widely believed to be a

necessity in view of severe inactivity on the part of the executive to protect people's

rights. Thus loss of space for executive has led to gain of space for the judiciary. This

has also transformed the role of the judiciary, which has invited the executive to co­

operate in matters where their slack has led to litigation. and the executive has

willingly accepted this second fiddle by the courts in general and Supreme Court in

particular.64

So far as limitations on the court is concerned that has mostly been self imposed. ~or

instance while entertaining PILs the court has cautiously guarded its jurisdiction by

avoiding it to become a sheer mechanism for personal aggrandizement or establishing

institutional supremacy. Of late self restraint is touching new heights. In the post

reform era we find that in a number of cases the court has expressed its reluctance to

even entertain public interest litigation. Many of such cases belong to the realm of

economic policy matters. Reasons could be many, but that has surely affected the

60 Hussainara Khatoon v. State of Bihar (1980) 1 see 81, Upendra Baxi v. Union ofIndia, Bandhua Mukti Morcha v. Union of India, (1984) 3 see 161, PUDR v. Union of India, (1982) 3 see 235 , Rudul Sah v. State of Bihar, (1983) 4 see 574 61 R.P. Ltd. V. Proprietor Indian Express Newspaper, Bombay (p) Ltd. (1988) 4 see 592 62 Vineet Narain v. Union of India 91998) I see 226 63 M.e. Mehta v. Union of India, AIR 1998 se 2340 , 64 See Azad Rickshaw Pullers Union v. Punjab, AIR 1981 se 14, where the Punjab eycle Rickshaw Act, 1975, which provided license to ply rickshaw to only those who own it, was challenged to be violative of article 19 (l) (g). Instead of striking down the validity of the Act, the court formulated a scheme whereby banks shall provide loans to rickshaw puller so that they can own these rickshaws and repay the loan gradually. The executive was more than willing to implement such a scheme.

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prospect of PIL as a strategy to approach the court challenging numerous decisions of

the government, which has the potential of affecting large number of people. This has

also impacted upon the remedies that were being offered in PILs.

A. New Economic Policy and PIL

PIL has been resorted to challenging economic policy decisions. However, there has

not been any consistent treatment to it in all such cases. While in some cases the court

has not objected to the filing of PIL on some other occasions, the court has rejected

PIL on the very ground that it is an inappropriate strategy to challenge the decision of

the government. We shall now analyze such cases in some more detail.

In Delhi Science Forum v. Union of India,65, the National Telecom Policy was

challenged to be violative of the Constitution as well as the concerned law on the

matter. It was challenged by a civil society organization on the ground that the state

cannot dispose of its exclusive privileges as granted under The Telegraph Act and

even if it does so, it has to comply with various articles of the Constitution. Inspite of

this being one of the early cases where the new economic policy was challenged, the

court did not raise any objection as to the petitioners making use of public interest

litigation. There was no discussion as to the applicability of PIL so far as challenges

to economic policies are concerned. The court decided the case on merits and also did

not impose any cost on the petitioner for having challenged a policy decision of the

government.

However the decision of the Supreme Court in Balco disinvestment case turned the

tides. It raised several issues of extreme importance. To begin with it re-Iooked at the

issue of locus standi. While the early history of PIL was witness to the court taking

the lead in facilitating a public spirited person, who has brought before the court a

matter of public interest, that does not seem to be the case anymore. Court used to

facilitate public spirited person by various means. For instance letters written by such

people were accepted by 'the court and converted into as writ petitions. This was based

on the belief that, "it would not be right or fair to expect a person acting in pro bono

65 (1996) 2 see 405

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publico to incur expenses out of his own pocket for going to a lawyer and preparing a

regular writ petition for being filed. ,,66

In contrast to the above approach, in the present case, the court hesitated to entertain

PIL filed by a lawyer, who has previous record of filing genuine PILs.67 However in

the present case the court observes that he has no interest in the matter brought before

the court, thus he should not have filed public interest litigation. Notwithstanding the

credentials of the petitioner as a public spirited person as acknowledged by the court

in the previous cases in Balco case the court used unsavory language against him.68

Making aspersions on petitioners in PIL is not new. Like the fate of B.L. Wadhera in

Balco case in Narmada Bachao Andolan69 case also the court. had condemned the

activities and the intention of the petitioner.

In the present case the petitioner's general association with the public sector

undertakings is taken to be an insufficient and unreliable ground for judging "public

interest". By holding that he is not even an employee, therefore his petition cannot be

termed as public interest litigation; the court tried to re-introduce locus standi in its

strict sense. In other words only an aggrieved party can come before the court. In

doing so, the court is reversing two earlier positions on two grounds. First, that the

person should not file a petition purely for his personal benefit, but it should have

some ingredients of public interest. However if the relief so granted on the matter also

benefits the petitioner that does not vitiate the public interest character of the petition.

66 As cited in S.P. Sathe, Judicial ACtivism in India, OUP, New Delhi, 2000, page 205 67 Prior to the Baleo case at his instance the court had decided a number of public interest litigation upholding the cause that he had espoused for. For instance in B.L. Wadhera v. Union of India, Writ Petition (civil) 179 of 1999 decided on 19/0412002, Maruti Clean Coal & Power Ltd v. B.LWadhera and Ors, Transfer Petition (civil) 813 of 2007, decided on 29/0112008, Dr. B.L. Wadhera v. Union of India and Ors, (1996) 2 SCC 594 68 The court observes in par 75 that, "Shri B.L. Wadhera has in recent years become a persistent Public Interest Litigant who has to his credit fairly large number of writ petitions filled in the Delhi high Court. Not to miss an opportunity, soon after the bid of Sterlite was accepted on 11 th February 2001 promptly Wadhera filled writ Petition in the Delhi High Court within two days ... challenging the said decision. Wadhera is not an employee of the company nor was he a prospective bidder. He contended that he had been closely connected with the public sector undertakings and therefore had the locus standi to file the Writ petition challenging the said disinvestment by filling what he terms as Public Interest Litigation." ( this has to be contrasted with a case where the burden of proof that there is public interest is presumed and the government has to prove that there is no public interest, see Subash Kumar v. State of Bihar AIR 1991 SC 420 and H.S. Choudhury v. Janata Dal (I 992)4SCC305). 69 (2000) 10 SCC 664.

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Economic Policies and Constitutional Adjudication· since 1991

Second the court has reduced the differences between "public law litigation" and

"public interest litigation".

In S.P. Gupata v. Union of India70 Justice Bhagwati had distinguished between public

law litigation and public interest litigation with respect to the principles of locus

standi, where he stated that so far as public interest litigation is concerned locus standi

could be accorded to any member of the public whereas in case of public law

litigation, locus standi should be restricted to a person who has suffered an injury.

While elaborating on the matter Sathe observed that, all cases associated with service

matters between an employer and an employee falls under the second category,

however challenging policy measures such as the implementation of the MandaI

Commission report fall under public interest litigation.71

The decision of the court in the Balco case, where the petitioner's authenticity in

filing the petition is being discounted on the ground of he not being an employee is in

contrast to the above mentioned observations, more so because in S.P. Gupta v. Union

of India Bhagwati, J., had held that the member of the public filling a public interest

litigation should have sufficient interest (emphasis added). But the he hastened to

clarify that the individual who moves the court for judicial redress in cases of this

kind must be acting bonafide with a view to vindicating the cause of justice and if he

is acting for personal gain or private profit or out of political motivation or other

oblique consideration, the court should not allow itself to be activated at the instance

of such person and must reject his application at the threshold.

Thus what matters is that an individual should have sufficient interest to vindicate the

cause of justice. What amounts to 'sufficiency' can be decided in a case to case

manner. However while examining the sufficiency of interest the court did not intend

to thwarter the very objective of relaxing norms on standing.

Unless there is sufficient ground to prove that private interest is being attempted to be

pushed in the garb of public interest the court should not cast doubts as to the

bonafide of the public interest petition. However this position of the court seems to be

70 AIR 1982 SC 149 71 Sathe, S.P. 2000. Judicial Activism in India. Delhi: Oxford University Press. See Pag~ 217.

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gradually changing after the introduction of the new economic policy as it is evident

in the Ba1co case where bonafide is presumed to be completely lacking.

One of the important ways of regulating accumulation of new cases is to discourage

PILs. Recently the court denounced PIL in the Aravali Golf club case72. This case

raises serious jurisprudential questions. However what is striking is the suggestion

that unless the court plays. a restrictive role in public interest litigations, judicial

independence will be undermined.

In this case a bench comprising Justice Markendey Katju and Justice A.K. Mathur,

expressed their anguish on judicial overreach. This case dealt with regularization of

two Malis, who had also doubled up as Tractor drivers and had garnered the

expectations of being regularized as drivers and not as Malis or gardeners. The

justices were of the view that creating new posts are policy decisions, and therefore

clearly beyond the power of the judiciary; the rationale being courts should interpret

law and should not indulge in creating one. The court observed that judicial activism

in PIL might lead to curtailment of power of the judiciary; therefore it is advisable for

judges to exercise restraint. The court also observed that by entertaining PILs the

judges should not expose themselves to judicial arrogance because there are no two

views that no organ of the state should arrogate itself all the available power,

otherwise democracy is doomed to fail. The court further warned that, the

constitutional trade off for maintaining independence of judiciary is best done, when

judges restrain themselves from interfering in the activities of the legislature and the

executive. Although the court has restrained from intervening in policy issues, it has

enetretained public interst litigation where policy per se is not challanged but an

implementation thereof is contested. For instance in Centre for Public Interest

Litigation v. Union of India,73 a PIL was filed challenging the decision of the

government to sell majority of its shares in Hindustan Petroleum Corporation Limited

and Bharat Petroleum Corporation to private parties.

This decision was taken by the government without making necessary changes in the

relevant legislations and without seeking approval from the parliament. The approval

72 Divisional Manager, Aravali Golf Club & Anr. v. Chander Hass & Anr Appeal (civil) 5732 of 2007 73 AIR 2003 SC 3277

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Economic Policies and Constitutional Adjudication since 1991

of the parliament was necessary in view of the fact that these corporations were

brought into life through Acts of parliament. These are nationalized entities and

cannot be de-nationalized without amending the law which nationalizes them.

Unlike Balco in this case the petitioners were challenging the impropriety of the

method in which the policy of disinvestment was proposed to be implemented.

Although in this case in view of the apparent errors in ignoring the law, it was

expected of the court to direct the legislature to make necessary changes in law.

However whether such a decision of the court amounts to any less intervention in

policy matter remains open to discussion. Whatever the case may be the court did not

doubt the efficacy of PIL in challenging the decision of the government and

entertained the petition and also provided the relief that was asked for in the petition.

Since then the government has not been able to carryon disinvestment of public

sector undertakings.

Contrasting result has been attained in another case where the court imposed strict

conditions to use PIL as a strategy to challenge government decisions. For instance in

Raunaq International Ltd. v. l. V.R. Construction Ltd74 the court observed that when a

writ petition is filed in the High Court challenging the award of a contract by a public

authority or the State, the court must be satisfied that there is some element of public

interest involved in entertaining such a petition. Whenever the dispute is purely

between two tenderers, the court must be very careful to see if there is any element of

public interest involved in the litigation or not. A mere difference in the prices offered

by the two tenderers. mayor may not be decisive in coming to the conclusion as to

whether any public interest is served by intervening in such a commercial transaction.

The court expresses apprehensions that its intervention in the said decision may

considerably delay the proposed project, which may have spiraling effect and lead to

cost escalation.

The court observed that in such cases where the intervention of court could lead to

delay in the implementation of decision or policy or project in such cases unless the

court is satisfied that there is a substantial amount of public interest, or the transaction

that is entered into is mala fide, the court should not intervene. Here the notion of

74 MANU/SC/077011998

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public interest is equated with concern of price escalation and the consequent delay

that would ensue. This view is different from the concern of the court in imparting

justice at ·whatever cost. Thus there has been a change in perception as well as

rationalization of the process of decision making in the way it is being done now.

Another important trend that is to be seen in this case is that, so far as usage of words

and expressions are concerned that remains the same but the meaning thereof has

changed immensely. For instance, in the above discussed case, the court reiterates

that, when a petition is filed as a public interest litigation challenging the award of a

contract by the State or any public body to a particular tenderer, the court must satisfy

itself that the party which has brought the litigation is litigating bona fide for public

good. The public interest, litigation should not be merely a cloak for attaining private

ends or a third party or of the party bringing the petition. The court can examine the

previous record of public service rendered by the organization bringing public interest

litigation. Even when public interest litigation is entertained, the court must be careful

to weigh conflicting public interests before intervening.

In the above said observation, the court reiterates one of the essential ingredients of

PIL; however the words are used in this case to achieve just the opposite result.

Meaning thereby public interest was advocated to keep PIL off the court as that

according to court is interfering with the efficient implementation of the project.

Intervention by the court may ultimately result in delay in the execution of the project.

The obvious consequence of such delay is price escalation. If any re~tendering is

prescribed, cost of the project can further escalate substantially. According to the

court what is more important is that ultimately the public would have to pay a much

higher price in the form of delay in the commissioning of the project and the

consequent delay in the contemplated service becoming available to the public.

Thus the court concludes if it is a power project which is thus delayed, the public may

lose substantially because of shortage in electricity supply and the consequent

obstruction in industrial development, If the project is for the construction of a road or

an irrigation canal, the delay in transportation facility becoming available or the delay

in water supply for agriculture being available, can be a substantial setback to the

country's economic development. Moreover presumption of bonafide may avoid all

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Economic Policies and Constitutional Adjudication since 1991

these litigations and the court will be relieved of entertaining petition under article

226. But even here, the court must observes that it must weigh the consequences

before granting Interim orders, and any consideration that would escalate the price of

the project invariably weighs heavily against the interest of general public. Thus the

court shall not intervene in the matter. Thus it is evident that the way the test is

devised there is a strong possibility of the court deciding in favour of any project or

policy decision of the government. In other words this test legitimizes judicial

restraint in policy matters, especially where matters pertaining to economy are

concerned.

This observation of the court is in contrast to the observation made in the S.P. Gupta

case. In the later case the court had stated that, "while PIL initially was invoked

mostly in cases connected with the relief to the people and the weaker sections of the

society and in areas where there was violation of human rights under Article 21, but

with the passage of time, petitions have been entertdned in other spheres." Thus the

court has accepted that there has been huge expansion in the justiciability of issues

due to the introduction of PIL in the public law jurisprudence. By limiting their

intervention courts are now attempting to define the PIL jurisdiction which is

invariably restrictive in nature. Further there have been instances where the court has

observed that PIL is a method which is judge induced, therefore in the absence of the

active participation of judges, this method cannot be initiated.75 Moreover the court

has retained the exclusive power to entertain or reject a PIL. This exposes the

vulnerability of PIL as a method to challenge governmental policies.

Of late the court has been of the view that in the garb of public interest litigation,

private interest litigations are being filed, which have counterproductive tendencies.

The court is also of the view that PIL is neither the panacea nor a pill for all kind of

issues. Therefore it should be sparingly used. Thus the court has been discouraging to

file PILs based on several grounds.

In Guruvayur Devaswom Managing Committee v. C. K. Rajan the court has set out

another limitation on filing PIL. In this case the court held that "it is trite where a

segment of public in not interested in the cause, public interest litigation would not

75 Balco Employees Union v. Union of India, AIR 2002 SC 350

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ordinarily be entertained." 76 With the exposition of this test the court creates another

pre-condition for filling PIL, viz., interest of the whole society should get affected to

initiate a public interest litigation. This criterion is difficult to attain, or there will

always be detractors and as well as silences regarding any particular issue. One may

also argue that it is practically impossible to examine whether the interest of the

whole society is at stake or not, especially in a situation where the decision of the

government, which is presumed to be the true representative of people (at least in a

procedural democracy) is being challenged. In this case clearly the voice of people

seems to be divided between the group or the individual who have filed the petition

challenging the decision of the government and people supporting it. The most

pertinent question here is which of these voices have the legitimacy so far as that

particular decision or issue is concerned? In all such cases the court is called upon to

legitimize the claims of either of the side, without however undermining the

institutional set up in a democracy.

Thus, adjudications especially Constitutional adjudication and public interest

litigations are platforms for constant struggle for legitimacy, which has to be

cautiously decided by the court. However demanding uniformity of cause and voice in

a primarily polycentric system as it is being done by the court in this particular case

seems unreasonable.

Notwithstanding the shaky grounds on which the court puts its arguments, the court

insists that though the existence of certain gray areas may not be ruled out but such a

case was required to be made out before the High Court which has not been done in

the instant case. For any court of law including this Court, it is difficult to draw a

strict line of demarcation as to which matters and to what extent public interest

litigation should be entertained. The court observes that the Supreme Court and the

High Court should, unless there are strong reasons to deviate or depart therefrom,

should not undertake an unnecessary journey through the public interest litigation

path. In this paragraph in very clear terms the court instructs that higher courts should

exercise restraint in entertaining public interest litigation.

76 MANUI SCI 0582/2003

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Economic Policies and Constitutional Adjudication since 1991

The court has also been reluctant to entertain PIL in general and PIL relating to

economic policy matters in particular because, the court is of the view that PILs are

potential hindrances in the path of economic development of the country. In

Chairman and M.D., B.P.L. Ltd. V. S.P. Gururaja77 a three judge bench of the

Supreme Court looked into the issue as to how economic development of a State can

be halted by Public Interest Litigation.

In this case the Karnataka Industrial Area Development Board had acquired a vast

tract of land inter alia for the purpose of allotment thereof to entrepreneurs who

intended to set up industries in Karnataka. In order to accelerate economic

development of the state, the state had adopted a policy decision to receive application

through single winpow system. A High level committee was set up to look into the

matter. A company applied for allotment of 500 acres of land for its three proposed

projects. After considering such application, the committee allotted 175 acre land and

also provided other incentives. The land was allotted out of the total of 29626 acre

land acquired by the state under the Karnataka Industrial Development Act. However

this allotment of land was challenged in the High Court through public interest

litigation on the ground that the statutory purposes for which the Board can acquire

the land had been breached. It was also contended that, the price on which the land

was allotted to the said company is less than the price at which it is sold to other

companies. Further there were allegations of corruption leveled against the

government as it did not notify the availability of land to general public. Therefore it

was alleged that there has been malafide exercise of power and the decision suffers

from legal malice.

On the other hand government argued that the respondents have no locus standi to

maintain the writ petitions as legal rights of the general public have not been

infringed. The government also observed that, under Article 162 of the Constitution a

single window Agency is established with significant power to undertake authenticity,

sanction/clearance/ approval to the establishment of new Industries of expansion of

existing units, which include sanction of infrastructural facilities like land, power,

water, finance etc.

77 AIR 2003 SC 4536

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Wherever an Industrial Project involves an investment beyond fifty crores, the

decision to accord sanction! approval! clearance is taken by High Level Committee.

After hearing rival contentions the High Court held that allotment of land in excess of

what has been developed by the company should be recovered. When the said order

was challenged before the Supreme Court, it was contended by the Additional

Solicitor that, since allotment of land was a matter of policy and a High level

committee was set up to decide allotment of land, the High Court should not have

interfered in such a decision. Further it was argued that, since the petitioners did not

have any locus standi on the matter and the respondents have already invested a lot of

money in developing the land, which has been unnecessarily dragged and delayed due

to the litigation. On the other hand on behalf of the petitioners it was argued that,

since the land was acquired under a statute and thus the land becomes a public

property proper care should have been taken in allotting such land. The allotment is

bad since the Board never enquired the company as to what is their requirement and

merely allotted the land without any enquiry.

In the instant case the Supreme Court held that, under the relevant statute and the

regulations framed thereunder no procedure has been specified to carryon

consultation. And since the Minister concerned was chairing the meeting and was a

representative of the government under article 166 of the Constitution, consultation

takes place by mutual discussions and a consensus is arrived at between different

authorities performing different functions under the statutes, the purpose for which

consultation was to be made would stand satisfied. Such a procedure of taking a

decision upon deliberations does not fall foul of Article 14 of the Constitution of

India.

In response to the contention that the land was undervalued, the Board responded by

holding that, while determining the price of. the land, it had to take relevant matters

into consideration and that will be developed by the company, thus the price of land

included the cost of acquisition, the cost of partial development, service and

establishment charges. The Supreme Court observes that, the above mentioned

contention of the Board is valid and thus does not deserve interference by the court.

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Economic Policies and Constitutional Adjudication since 1991

The court held it once it finds that the power exercised by the statutory authorities can

be traced to a provision of statute, unless and until violation of mandatory provisions

thereof are found out and! or it is held that a decision is taken for unauthorized or

illegal purposes, the court will no~ ordinarily interfere either with the policy decision

or any decision taken by the executive authorities pursuant to on or in furtherance

thereof.

The court held that the High Court had committed a manifest error insofar as it failed

to take into consideration that the delay in this case had defeated equity. The

allotment was made in the year 1995. The writ application was filed after one year.

By that time the Company had not only taken possession of the land but also made

sufficient investment. Thus delay of this nature should have been considered by the

High Court to be of importance.

Furthermore, the Supreme Court insists that the High Court oUght to have taken into

consideration the factum of resistance in the matter from those persons whose lands

have been acquired. Only because the lands are vested in the State upon acquisition

thereof, the same by itself would not mean that the persons whose lands were

acquired were not interested in getting the allotment. Moreover the locus standi of the

respondent ought to have been taken into consideration having regard to the specific

pleas raised in this behalf by the appellants. This observation of the court is similar to

the case of disinvestment of Baleo.

It is important to note that the Supreme Court refuses to interfere in the PIL, in spite of

the fact that the allegations brought in this matter are serious in nature and pertain to

distribution of state largesse. This is in contrast to the observation in many earlier

cases where the court has held that, the government has to be extremely careful while

distributing largesse and should ensure fair play in action.

To conclude PIL is a unique improvement upon the adversarial system of justice

delivery. It reflects the potential that the judges have in determining the path of socio­

economic development of the country. However, in the wake of economic reform

there is no consistent pattern that has been followed by the court, so far as the formal

procedures are concerned as well as the remedies that are being offered. In fact the

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court has shown its reluctance in a number of matters either on the plea that the

petition is not genuine or that the courts are ill-equipped to interfere in policy matters.

However this reluctance seems to be selective in nature. Because there have been

evidences that the court does interfere in various other policy matters where it is

similarly placed.

Due to selective entertainment of PIL and overshadowing of concerns of efficiency

over the rights of people, the poor and the disadvantaged are getting adversely

affected and are subject to the mercy of the judiciary. Therefore a time has come to

rethink PIL as a strategy, which is primarily a judge initiated method of imparting

justice. It has to be understood that there are two inherent features of PIL, which has

to be redefined; firstly, PIL is a judge induced method and second here justice is

imparted from above and people are the mere beneficiaries of that.

The challenge here is to sustain PIL in the legal landscape of India irrespective of the

fact that whether the judge in question commits himself to the virtues of PIL not.

Another challenge is to see that the top down approach of PIL does not created a

culture of dependence amongst the seekers of justice.

From the above discussion it is apparent that the viability and suitability of PIL as a

strategy to challenge governmental decision making in general and in the sphere of

economic matters in particular remains uncertain. This is because, all the three

revolutionary changes in the adjudicatory process, which made PIL a liberating force

from the traditional justice delivery systems, seems inundated in the wake of the new

economic policy. Thus the question whether PIL is the best strategy or not falls short

of any clear answer. It is evident from the above discussion that after the introduction

of the new economic policy gradually norms relating to challenging policies are

getting stringent. In this regard considerations of efficiency, expediency and cost

overrun have received an upper hand in deciding policy issues. This raises serious

doubts as to methods and strategies for challenging governmental decisions and the

relevance of approaching judiciary in such cases. However there have been cases in

the past where the court has held that issues of efficiency cannot do away with the

Constitutional requirements that the governments are required to follow. For instance

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EcoTiomic Policies and Constitutional Adjudication since 1991

in R.D. Shetty v. International Airports Authority,78 the Supreme Court had

specifically declared that, the government and its agencies and instrumentalities have

to abi,de by the well settled rule of administrative law. Government actions must be

infornned with reason and should be free from arbitrariness

It is evident from the cases discussed above that the court in a way accepts the

supremacy of the legislature in deciding what is efficient in society. There have been

views that in a democracy, where decisions are based upon the principle of majority

rule tJhey do not necessarily lead to a situation where welfare of all is a necessary

conse'luence. This is so because; there are inconsistencies in voting patterns. In fact

votillg in a plural society with more than two alternatives can actually lead to a

circuJOll" motion in the pattern of choices and need not give effective representation to

all the voices at a given point in time. Therefore, reliance placed on the policy

deci!;iQns of government cannot said to be so sacrosanct that even judicial review is

uncaJled for. Though efficiency as a value is important, it is certainly not the only

value to be valued. Rather, the recognition of the fact that there is multiplicity of

values and that values have their domain of application is vitally important. Therefore

efficiency alone should not sweep away all kinds of safeguards including legal

safegUlards.79

4.4.6 Judicial Work Load and Policy Adjudication

In the context of economic policy issues, courts are not only concerned with the

efficient implementation of the policy they are also concerned with the efficiency of

the judicial system. Unless pendency is reduced, people will lose faith in the system

of administration of system and the court shall go down from the important position it

enjoys in the society. As per the available data currently 47855 cases are pending in

the SUlpreme Court whereas total number of 3778715 cases pending in various High

Courts in India.8o In view of this huge pendency, the court is being called upon to

clear iits own docket before it could intervene in other policy issues, as it is often

78 (1979) 3 sec 489 79 Jain, Satish K. 2003. "Globalization, Legal institutions and Values," in Economic Institutions in India. PiU1hasarthi Banerjee and Frank Jurgen Ritcher eds. London: Palgrave Macmillan. See page 363 80 ColJl1t News, July 2008.

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observed that pendency of cases has hampered the decision making process in general

and of the Indian Supreme Court in particular.

Huge backlog of cases has also been held responsible for the lack of visible

contribution of the Indian judiciary to the process of economic reforms, as the court

has not been able to do quick disposal of cases.81 Though it is believed that courts in

common law system adapt to the changing demands of time quicker than the courts in

the civil law system, and India is a common law system, thus Indian courts should

adapt to changes faster. However that has not been the case in India, where courts are

overburdened with cases.82 The concern of pendency of cases also impacts upon the

decision making process of court. Many a times even the court refuses to interfere in

economic policy matters as it is already over burdened with huge backlog of cases and

does not want to adjudicate on issues which do not seem to fall exclusively within its

jurisdiction.

Primarily litigation increases due to three reasons; fIrst, due to vast increase in the

number of laws that get enacted (especially if the law is badly drafted); second, by

judicial interpretation of laws wherein the court prefers giving expansive

interpretation to different words( which creates more constituencies and more rights) 83.

The third reason for increase in the number of cases is due to increased economic

activity. As more and more informal business relation develops, it leads to reliance

being placed upon a third party institutionalized adjudicatory body, for adjudicating

upon the rights and liabilities of parties. Increase in litigation due to any of these

reasons adds to the existing burden of cases.

Lack of time has come to light in the case of Mardia Chemicals 11. Union of

India, 84. While disposing off the writs on the constitutional validity of Securitization

Act, the court observed that, normal process of debt recovery through courts is

lengthy and time taken is not suitable for recovery of dues. Delay that is caused due to

81 Sated by Chief Justice KG Balakrishnan in the National Legal Day Lecture, 2007 82 Armour, John and Priya Lele. 2008. "Law, Finance, and Politics: The Case of India." ESRC Centre for Business Research - Working Papers wp361. 83 The most glaring example of that is the right to life jurisprudence development by the Supreme Court. It now includes a number of enumerated as well as un-enumerated rights within its fold. Similarly the introduction of public interest litigation has changed the nature and number of petitions filed in courts. 84 1998 Indlaw SC 632

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Economic Policies and Constitutional Adjudication since 1991

absence of timely recovery mechanisms, which has been adversely affectingly

financial liquidity and has been creating circumstances which are retarding the

economic progress followed by a large number of other consequential ill effects.

Therefore the enactment of the Securitization Act is valid, which aims at speedy

recovery of debts.

In order to avoid the long delay that ensues when a battle on recovery of dues reaches

a court of law, the new Securitization Act was enacted. In that Act provisions were

made whereby the jurisdiction of the Supreme Court as well as the high court was

taken away. While analyzing the Constitutional validity of this provision, the court

upheld this provision. The court observed, by ousting the necessity of approaching the

court, the Act has been able to achieve the purpose for having a speedier system in

place for dealing with issues of bad debts.

Thus, it is evident from the above discussion that delay, cost overrun, efficiency and

expediency does influence the decision making process where policies concerning the

economy are contested before the court. The discussions so far shows that the court

has refrained from interfering on matters involving economic policies. In most of the

cases the court has expressed the view that economic expediencies lack adjudicative

disposition. In other words these matters are non-justiciable. It is also of the view that

courts are not the best places to resolve these issues. The court is of the view that

legislature is the best forum to take policy decisions.

4.4.7 Limitations of Judiciary as a Forum for Policy Determination

It has already been discussed above the judiciary finds it difficult to address policy

issues because of certain procedural and institutional limitations. Adversarial process

of adjudication is one of them, where limitations of arguments, material, alternatives

on solutions and most importantly the limited terms of reference on which judges

decide cases hinder the courts to reaching a policy decisions. Therefore the court often

finds it convenient to resort to the doctrine of separation of power and emphasize

upon the suitability of other branches of government to formulate policies. These

views find expression in many Supreme Court decisions.

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According to the Supreme Court policy issues are best resolved outside the realm of

courts. Legislature is more competent to deal with these issues because it is the

representative of people and in economic matters they should be given play in joints.

Detailed deliberations can take place in parliament and it is for a vigilant parliament

to take up policy decisions which can best subserve the common good. Moreover

courts also lack technical competencies to deal with policy issues and therefore refrain

from intervening in such issues, otherwise they shall be instrumental in escalating

costs and delaying projects. 85

The legislature being the representative of people also takes decision based upon the

criteria of serving 'public interest'. The legislature take general welfare of people into

considerations, at least the court presumes it to be so. However it is already discussed

above that it is not always necessary that decisions taken by representatives are in the

interest of public. Nevertheless the court presumes that actions of the legislature and

executive are in the interest of public. The court allows play in joints to these

authorities as, public interest is not a static concept and it keeps changing with time86.

Keeping in view the dynamic nature of public interest the legislature provides a

platform to adapt to the changing needs and to serve the demands of people. Thus

85 See Zippers Karamchari v. Union of India, 1998 INDLA W SC 632 86 In State of Bihar v. Kameshwar Singh (AIR 1952 SC 252) the Supreme Court held that whatever furthers the general interests of the community as opposed to the particular interest of the individual is pubic purpose. Public purpose has to be constructed according to the spirit of the time in which particular legislation is enacted. In Harnabai Pramjee Petit v. Secretary of State for India (1915) 42 I. A. 44 it was observed that the phrase "public purpose" whatever it may mean, must include a purpose, that is, an object or aim, in which the general interest of the community as opposed to the particular interest of individuals is directly and vitally concerned. The purpose must be public, and must have reference to the needs or convenience of the public, and no reason of general public policy will be sufficient to validate other transfers when they concern existing vested rights. In the context of the Indian Constitution, the supreme court in Mafatlal Industries v. Union of India (1997) 5 SCC 536, para 83, held, "it is a case of balancing public interest vis-a-vis private interest. Where the petitioner-plaintiff has not himself suffered any loss or prejudice (having passed on the burden of the duty to others), there is no justice or equity in refunding the tax (collected without the authority of law) to him merely because he paid it to the State. It would be a windfall to him. As against it, by refusing refund, the money would continue to be with the State and available for public purposes. The money really belongs to a third party- neither to the petitioners/ plaintiff nor to the State- and to such third party it must go. But where it cannot be so done, it is better that it is retained by the State. By any standard of reasonableness, it is difficult to prefer the petitioner-plaintiff over the state. Taxes are necessary for running the state and for various public purposes. In this connection, a distinction is rightly emphasized, the distinction between the Constitutional values obtaining in many other countries and values obtaining under our Constitution. Unlike the economically neutral if not pro-capitalist Constitutions governing many countries, the Indian Constitution has set before itself the goal of "Justice, Social, Economic and Political" along with the goals mentioned in Part IV of the Constitution and in particular, in Article 38 and 39. In this context sacrifice of individual right for the purposes of collective welfare is justified by the court.

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government has a right to "trial and error" while taking policy decisions, as long as

trial and error is bonafide and within the limits of its authority. This issue has been

emphasized upon by the Supreme Court in Balco disinvestment matter. This aspect of

the problem shall be further elaborated upon in the later part of this chapter. Since this

is an issue which runs through all the decisions of the Supreme Court on issues of

economic policy, reference shall also be made to the scope of the legislative activity

in carrying out economic policies

Thus the Supreme Court is in favour of limited review of economic policies. It gives a

number of reasons as to why it should not intervene. It has also carved out certain

exceptions when the court should review a policy decision. The supreme court has

held that it can exercise judicial review when violation of constitutional or legal

provisions are alleged or the policy is abhorrent to reason or it has been decided

without taking into consideration relevant facts and leaving out irrelevant

considerations87•

In the following section we shall discuss cases where the implementation of any

policy has been challenged before the court. We shall examine how far the court has

been able to check the excesses committed by the other two branches of the

government, protect fundamental rights of people and has intervened when the

justifications for judicial intervention are found present in a given case.

4.5 Adjudicating the Process of Implementing Policies

A policy can be implemented by amending the constitution, by enacting or modifying

statutes or by executive actions. All of these methods of implementing policy can be

subjected to judicial review, on the ground that, it violates the constitution, the

fundamental rights enshrined in the constitution or the basic structure of the

constitution. Validity of statutes and executive actions can be examined vis-a-vis the

87 In Union of India v. Kannadipara, (2001 Indlaw SC 2406) the Supreme Court held that courts cannot interfere in policy issues even if that is based on political considerations; the rationale being political consideration does not necessarily give rise to legal malafide. The court clarified that a political decision if taken by a competent authority in accordance with law cannot per se be regarded as malafide. In other words, legal malafide may be attributed to political consideration but political consideration need not necessarily give rise to legal malafide, and it is for the judiciary to look into legal issues and not political questions. In a number of decisions the court has held in the past that political questions are outside the realm of judicial review.

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constitution and validity of executive actions can be examined vis-a-vis the relevant

statute as well as the constitution. Thus in a hierarchical system of law, the validity of

a law can be checked vis-a-vis a law that is higher to the law, whose validity is under

scanner.

The Supreme Court has often observed that even if there is limited scope of judicial

review in issues of economic policy, nevertheless it can intervene in such issues, is

there is violations of constitutional or statutory law. There are two reasons for the

exercise of judicial review in such cases, first, the court is under an obligation to

protect people's fundamental right and second, it is one of the basic ingredients of

judicial review to check the excesses committed by the other coordinate branches of

government.

Judicial review is also justified on the above mentioned grounds because, while

implementing policies there are chances that violations of the constitutional

provisions, especially violation of fundamental rights and other statutory provisions

may occur. Further the implementing agency may exceed its permissible limits or

exercise its power in a manner which is in contravention to constitutional principles.

In such circumstances it is the duty of the Supreme Court to exercise its power of

judicial review and intervene in the implementation of the policy in question and

strike it down if necessary. Thus the court accepts that procedural aspect of a policy is

amenable to judicial review. However whether the court actually exercises such

power or not shall be analyzed in the following section.

4.5.1 Violation of The Constitution

Violation of the constitution is an important ground for judicial intervention as

Constitution is not only about distribution of powers but also about protection of

fundamental rights. Therefore a constant check on the validity of legislative and

executive action vis-a-vis the Constitution is obvious.

Constitution can be said to be violated, when any of its provisions, be it a provision

guaranteeing a fundamental rights or a provision on the working of the different

organs of the state and prescribing limits thereof has been violated or the values to

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Economic Policies and Constitutional Adjudication since 1991

which the Constitution commits itself or the basic structure of the Constitution has

been infringed. According to the Constitution, fundamental rights are. protected

against the 'state'; therefore we shall begin 'with an analysis of the concept of 'state'

and the changing dimensions thereof. This analysis can throw light upon the varying

scope of protection of fundamental rights.

A. Article 12 and Violation of Fundamental Rights

Under the Constitution of India fundamental rights are protected against the excesses

committed by the state. "State" has been defined under article 12 of the Constitution

which, includes state and central governments, other legislative bodies and executive

authorities and also includes 'other authorities'. As it has been discussed in the

previous chapter this provision has been given wide interpretation to include within its

fold all agencies and instrumentalities of state, which also includes public sector

enterprises and government companies.88 While there are views that recognizing

PSUs as state had severe consequences on the working of public sector undertaking,

nevertheless vide this recognition the constitutional protection has been extended to

the employees of these organizations.

Since the introduction of the Industrial Policy Resolution of 1991, private

participation has been encouraged in many spheres of economic activity, beginning

with the electricity reform followed by the mining, telecommunication, insurance,

banking, petroleum and aviation. The government adopted several methods to

encourage participation, which includes, gradual reduction of government's equity

holding in public sector enterprises, sale of these enterprises and fostering public

private partnerships. These measures have brought a 'private' element into the

hitherto 'public' sector enterprises.

It had profound impact on the rights and liabilities of the public sectors enterprises

and people related thereto. For instance in case of divestment, the dispute which could

have been a public law dispute is turning into private law dispute confined to the

rights and liabilities of an employer and employee. The public sector enterprise which

88 However the court had fallen short of recognizing private corporations as state in the M.C. Mehta v. Union of India,( 1987) I SCC 395

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is privatized could no more be said to be 'state' and the employees working therein

are no more able to claim protection under article 16 of the Constitution. Thus it is

obvious that such affected employees would dispute the decision of the government

on disinvestment and assert their fundamental rights.

The validity of the policy of disinvestment was upheld by the Supreme Court in the

Baleo Employees Union v. Union of India. 89Since that decision there has not been any

challenge to the disinvestment policy per se. However issues pertaining to the rights

and liabilities of the employees of the erstwhile public sector undertakings have

cropped before the court in a number of occasions. Such issues have been raised in

Baleo disinvestment case, All India ITDC Workers Union9o case and the BCPP 91 MazdoorSangh v. N.T.P.e. .

Baleo was the first case where the disinvestment policy was challenged. Though the

court upheld the policy of disinvestment it did not recognize the rights of the

employees to challenge a policy decision of the government on the ground of

violation of fundamental rights. One of the most important contentions on the part of

the employees of Balco was, since Balco is a public sector undertaking, thus it is a

"state" for the purposes of protection of fundamental rights. Whereas after the

disinvestment, Balco will no more be a state and the employees shall lose the

constitutional protection. Therefore it will amount to violation of their fundamental

rights, especially article 14 and 16, which are very important safeguards in matters of

public employment. However the court rejected this contention and distinguished

between employees of public sector undertakings and government servants.

The court observed that even government servants who are protected under article

309-311 do not have complete protection. For instance their posts can be completely

abolished.92 In comparison to government employees the employees of the public

sector undertaking do not stand in any better position. Moreover the public sector

employees are entitled to fundamental rights as a result of creative judicial

interpretation and thes'e enterprises are construed to' be state only for the purposes of

89 AIR 2002 se 350 90 2006 Indlaw se 887 91 Appeal (civil) 678 of 2006 92 Srilekha Vidyarthi v. State of Uttar Pradesh, (1991) I sec 212

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Economic Policies and Constitutional Adjudication since 1991

protection of their fundamental rights. Since the employees of public sector

undertakings are protected by the judiciary they cannot claim better service conditions

than the government ~ervants who are protected by the Constitution.

The court held that employees cannot be heard and they cannot upset the decision of

the government to divest its share in the undertaking. The principle of natural justice

cannot be said to be applicable in matters of economic policies. If a policy decision of

the government affects the rights of the employees that should be taken as an

incidence of service and that alone cannot upset the decision of the government to

disinvest. The court hoped that a good employer can be expected to consider the

welfare of labour while taking policy decisions but that does not mean the employees

can demand a right to be heard. According to the court absence of that opportunity

cannot per se vitiate the decision of the government.

When the attention of the court was attracted to the National Textiles Wokers Union v.

P. R. Ramakrishna93the court observed that there is an important difference between

that case and the disinvestment of Baleo. The court held that in judicial proceeding

right to be heard is to be provided whereas in case of a policy decision the right need

not be provided since policy decisions are neither judicial nor quasi judicial in nature.

The court recognized that while hearing the employees might be fair but in the

absence of a statutory requirement it need not be given.

It may be noted that the distinction between judicial and administrative function has

been removed by court since the decision in A.K. Kraipak v. Union of India.94Jn that

case the court held that, "the dividing line between an administrative power and a

quasi judicial power is quite thin and is being gradually obliterated. For determining

whether a power is an administrative power or a quasi judicial power one has to look

to the nature of the power conferred, the persons or persons on whom it is conferred,

the framework of the law conferring that power the consequences ensuing from the

exercise of that power and the manner in which that power is expected to be

exercised. In a welfare state like ours .. .it is inevitable that the jurisdiction of the

administrative bodies is increasing at a rapid rate. The concept of rule of law would

93 AIR 1983 SC 75 94 AIR 1970 SC 150

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lose its validity if the instrumentalities of the state are not charged with the duty of

discharging their functions in a fair and just manner. The requirement of acting

judicially in essence is nothing but a requirement to act justly and fairly and not

arbitrarily or capriciously. Thus in view of the changing concept of judicial power,

what was considered as administrative power is now being considered as quasi

judicial power."

The decision of court in A.K. Kraipak, along with the later developments that has

taken place as a result of the decision in Maneka Gandhi v. Union of India95

(procedural fairness was held to be part of right to life) and M. S. Gill v. Chief Election

Commissioner96 (distinction the distinction between quasi judicial and administrative

power is no more valid and whenever any action of the executive authority gives rise

to adverse civil consequences, right to be heard is to be made available. Thus

according to these decisions, there is no distinction between judicial, quasi judicial

and administrative function primarily because; any action that can have the effect of

adversely affecting the rights of people and cause civil consequences, should give a

fair chance to th~ person getting affected as a result of such exercise of power.

Since the Supreme Court also distinguished between government servants and

employees of public sector undertakings it may be noted that in A.L. Kalra v. Project

and Equipment Corporation97the Supreme Court had held that notwithstanding the

non-application of article 311 to the employees of public sector undertakings, regard

must be had to the fact that part III protections are provided to the employees.

Therefore the distinction sought to be drawn between protection of Part III and article

311 has no significance. The court has observed that employment in public sector has

increased manifold, and the employees in the public sector discharge as onerous

duties as government employees, it is therefore right that the integrity and

independence of those employed in public sector enterprises is as secure as the

independence and integrity of civil servants.

95 AIR 1978 SC 597 % AIR 1978 SC 851 97 AIR 1984 SC 361

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Economic Policies and Constitutional Adjudication since 1991

However in Baleo employees case the court takes a different view, which otherwise

and not only undennines the constitutional jurisprudence developed on the concept of

state, but also the meaning and significance of fundamental rights, which has now

been made subject to the discretionary power of the judiciary to either guarantee or

take these away. The exercise of judicial review seems vulnerable vis-a-vis a

determined legislature.

Similar trend continued III another mater on disinvestment where the workers

contested an outright sale of one of the ITDC hotels to a private company. In view of

the governments disinvestment policy it was decided to disinvest a number of hotels

run by the government as they did not fall into the core sector. Hotel Agra Ashok was

decided to be disinvested. The workers of the ITDC Agra Ashok contested the sale.

The Supreme Court upheld the disinvestment. 98

In this case the ITDC workers union had challenged the sale on the ground that the

hotel, which is situated in Agra and had a market value of about Rs 20 crores was

being sold for a meager sum of Rs 3.90 crores to MIS Mohan Singh and Yamuna

View Private Limited. It was agitated that hotel was undervalued and should not be

sold off. The petitioner had also sought direction from the Supreme Court to the effect

that the government should implement a Voluntary Retirement Scheme (VRS)

whereby their service conditions must remain unchanged.

The contention was based upon the ground that similar voluntary retirement schemes

were floated when the Ashok Tours and Travels and Hotel Manali Ashok were being

disinvested. Since ITDC follows a cadre system and even all India seniority list is

being maintained therefore irrespective of where they are posted all the ITDC workers

belong to one single category and should therefore be treated alike. In the absence of

equal treatment, the decision of the government would be unequal, unfair and

arbitrary and violative of article 14 of the Constitution.

While negating the above mentioned contentions the Supreme Court observed, that

there is absolutely no merit or substance in the contentions raised by the petitioner.

The writ petitions were dismissed since policy decision taken by the government of

98 All India ITDC Workers Union v. ITOC, 2006 Indlaw SC 887

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India to sale hotel Agra Ashok to MIS Mohan Singh and Yamuna View Private

Limited cannot be assailed at the instance of the employees. The court relied upon the

Balco decision to come to this conclusion.

The court also relied upon the Balco decision and observed that government

employees have no absolute right under Article 14, 16 and 311 of the Constitution of

India, since the Government enjoys enormous power which includes the power to

completely abolish a post. In the present case, the petitioners are not government

servants and are merely employees of a public sector undertaking. The court observed

that the petitioners will be protected by the new management of the Hotel.

The court also took note of the fact that the government did not receive any higher

offer when it gave public notice for the sale of the hotel. Therefore the question of

undervaluation does not arise. The court placed reliance upon the Balco Case and held

that the policy of the government cannot be changed in view of the allegations against

it. Thus the allegations of arbitrariness were brushed aside on the ground that policy

issues cannot be looked into by the court held that since there was no provision for

voluntary retirement scheme in the contract signed by the private company and ITDC,

the employees thereof cannot claim voluntary retirement schemes. In other words, the

government is free to enter any kind of contract it wishes to with private parties, and

wash its hands off its constitutional obligation under article 14.

There are other cases as well where the decision of Balco has been followed while

deciding the rights of the employees in restructured corporations. These cases include

the Prasar Bharti99 case and the Indian Airlines Officers AssociationlOO case. In both

the case, disinvestment was not in issue. However the rights of worker were alleged to

be adversely affected due to restructuring of these corporations. Notwithstanding the

dissimilarities the court has applied the ratio of Balco in both these cases. The court

has done so by extending the application of the Balco case to all cases where due to

any policy measures, a restructuring of the industry has taken place and the rights of

the employees have been adversely affected.

99 Prasar Bharti v. Amarjit Singh, 2007 Indlaw SC 85 100 Indian Airlines Officers Association v. Indian Airlines Ltd., Appeal (civil) 1269 of 2007

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Economic Policies and Constitutional Adjudication since 1991

Notwithstanding these cases where the decision in the Balco case has been followed

in another matter pertaining to the disinvestment of Baleo, a two judge bench of the

Supreme Court held that the rights of the employees have to be protected and their

fundamental rights cannot be violated as a result of the disinvestment policy. The

court also distinguished its decision from the Baleo as well as ITDC workers union

case.

In BPCC Mazdoor Sangh v. NTPC, 101 certain employees originally recruited by

NTPC but working in Baleo, were transferred to Sterilite Industries in view of the

disinvestment of Baleo. As a consequence of disinvestment the public sector

undertaking became a private company. The employees contended that their service

conditions cannot be adversely affected by such a decision of the government. Due to

disinvestment they stand to loose constitutional protection provided under article 14

and 16. They strongly argued that, since they were not party to any such agreement,

the nature of their job cannot be altered to their disadvantage.

Although the arguments were similar to that of the Baleo case, the court accepted

these demands and held that though it is aware of the decision of the Supreme Court

in Baleo Employees Union and ITDC Workers Union case, where the court has

approved the policy of disinvestment that does not bar this court from entertaining the

petition of the concerned employees. It held that in the present case the service

conditions of the employees cannot be altered and they should continue to work for

NTPC, which is also a public sector undertaking.

The court relied upon lNU v. Dr. K.S. lawatkar lO2, which was explicitly rejected in

both Baleo and ITDC case. In this case the Supreme Court had held that an employee

cannot be transferred and made to work in another organization without his consent.

Since in the present case the agreement was signed between NTPC and Baleo and

workers were not a party to it they cannot be made to work under the new

management.

101 Appeal (civil) 678 0[2006 102 1989 Supp. (I) see 679

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It was also observed by the court that whereas the executive staffs were not made to

work under the new management the non-executive staff was denied any option of

either leaving or joining the new management. This amounted to discrimination and

thus violates the Constitution of India. The court was of the view that, while the

executive employees continue to get these constitutional benefits, due to the

compulsory transfer of non-executive employees they are deprived of these

protections. The non-executive employees cannot be discriminated against. In view of

all the above considerations Supreme Court has taken a different view than BaleD and

ITDC workers case and has primarily relied upon constitutional provisions to uphold

the rights of the workers.

Thus we find while arguments of violation of article 14 was not paid heed to in ITDC

workers case on the ground that the government has an absolute power to enter into

varied contracts with different people, and thus the exercise of that power cannot be

said to be violating fundamental rights of anyone. .

While the rights of workers have been mostly been relegated to the background in

cases on disinvestment, primarily due to the lack of judicial review of policy

decisions, the court has been active in reforming labour laws in general as well, which

could suit the changed economic circumstance. The role of court in bringing labour

reform is important from a number of perspectives- first that is an area the legislature

has limited reform and second because the court is active in bringing the required

changes through judicial interpretations even if that amounts to deviation from past

precedents and doing away with constitutionally inspired interpretation of labour

laws. It is important note that, the consequence that has ensued in both the cases has

been same, viz., gradual erosion of protective labour rights and lesser reliance upon

constitution while adjudicating labour disputes (see annexure).

A deeper analysis into the decisions of the court throws light upon the fact that the

court has attempted to adjust to the new role of state in the era of economic refOlIDs,

the state encouraged private participation and has also has acquired the role of a

regulator instead of being the lead actor. The new dimensions of 'state' are evident in

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Economic Policies and Constitutional Adjudication since 1991

the decision of the court in Zee Tele films v. BCCIJ03• In this case it was contended by

the appellant that the respondent cricket control board is "state" for the purposes of

part III of the Constitution. The court refused to hold the board as state.

In Zee Tele Films, the issue was whether the Board of Cricket Control in India is a

"state" or not. While deciding the matter the court relied upon the decision in Pradeep

Kumar Biswas v. Indian Institute of Chemical Biologyl04 where it was held that the,

tests laid down in Ajay Hasia v. Khalid Mujib105 to determine whether an entity is

state or not is not rigid and an entity falling into any of those criteria need not

necessarily be held to be state under article 12 of the Constitution. Rather the issue

has to be decided in a case to case manner on the basis of the facts of each individual

case, and it shall be determined whether the body in question is financially,

functionally and administratively dominated by or is Under the control of the

government. Such control should be pervasive in nature and should not merely be

regulatory control exercised under any statutory obligation.

While deciding whether the cricket Board is a state or not, the court observed that, "It

is to be noted that in the meantime the socio-economic policy of the government of

India has changed [See Balco Employees Union v. Union of India, (2002) 2 SCC 333]

and the state is today distancing itself from commercial activities and concentrating

on governance rather than on business. Therefore the situation prevailing at the time

of Sukhdev Singh lO6 is not in existence at least for the time being, hence there seems

to be no need to further expand the scope of "other authorities" in article 12 by

judicial interpretations at least for the time being. It should also be borne in mind that

as noticed above in a democracy there is a dividing line between a state enterprise and

a non-state enterprise, which is distinct and the judiciary should not be an instrument

to erase the said dividing line unless of course the circumstances of the day require it

to do so."

103 (2005)4 see 649 104 (2002) 5 see III 105 AIR 1981 se 487 106 In Sukhdev Singh v. Bhagart Ram, AIR 1975 se 1331, the court had placed emphasis upon the socio-economic policy of the country and thought it fit to expand the definition of the term "other authorities" to include bodies other than statutory bodies. This development of law by judicial interpretation culminated in the judgment of the 7 judge bench in the case of Pradeep Kumar Biswas v. nCB, (2002) 5 sec III

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The primary reason for the judiciary to refrain from holding the Board as state, even

though it fulfils certain criteria as laid down in previous cases is, "the fact that the

Constitution of this country is a living organism and it is the duty of courts to interpret

the same to fulfill the needs and aspirations of the people depending on the needs of

the time ... In article 12 the term "other authorities" was introduced at the time of

framing of the Constitution with a limited objective of granting judicial review of

actions of such authorities which are created under the statute and which discharge

state functions. Therefore the court should refrain from giving an expansive

interpretation to the phrase "other authorities".

Contrary to the view mentioned above it can be argued that the functionality test has

been built into article 12 by the court in some of the previous cases which seems to

have been ignored in the above mentioned case.

However the functionality test has emphasized by the Bombay High Court in

Flemingo Duty Free Shop Pvt. Ltd. v. Union of India 107. This case redefines "state"

and explains in details the need for such a definition in the changing economic

scenario. In this case the issue before the court was to determine whether the Mumbai

International Airports Authority (MIAA) is a state, wherein the Airports Authority of

India holds 26 percent stake, which effectively means it can stall any decision of the

MIAA if wishes to do so.

The court categorically held that merely reducing the share of the government to

below 50 percent will not make this 'purely private company outside article 12 of the

Constitution. The court relied upon the decision of the Supreme Court in Amar

Alcohol v. SI/COM Ltd. 108 In the present case there is a public private cooperation

right from the beginning. Even if it is a company registered under the Companies Act

that cannot be said to be "purely private" entity. Thus this is a "state" covered under

article 12 of the Constitution and is under the obligation to protect the rights under

article 14.

107 WRIT PETITION NO.617 OF 2007, of the Bombay High Court 108 2006 10 (SCC) 199

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Economic Policies and Constitutional Adjudication since 1991

The court relied upon the functionality test for the said purposes. It observed that the

private company is undertaking statutory functions and exercises statutory powers.

The power to evict, which is similar to the power to evict from public premises is a

public function. This has been assigned to the Airport Authority. Since the premises

of the airports are public premises even after it is given on lease, it is a strong

indicator that the company running them is "state". The government has huge

financial stakes in the said company. Besides holding 26 percent of shares, the

government is also entitled to get 38.7 percent of the gross revenue generated in that

airport. The company is given the right to collect duties, and share that with the

government. Collecting duties is surely a sovereign function of the state. Further the

company enjoys monopoly status to maintain and manage the Mumbai International

Airport. The government can exercise a number of controls on the activities of the

company in terms of controlling the functional aspect of the company. Thus the

government is' as interested in the managing the airport as is the private company.

There is joint interest in carrying out the business. The memorandum of

understanding expressly holds the Mumbai Airports Authority liable to act in a

reasonable and fair manner as it is conceived under article 14 of the Constitution. The

memorandum also contemplates that in certain cases the contractual rights of the

company shall automatically get transferred to the Airports Authority of India. The

court relied upon all those factors to conclude that the company is 'state' for the

purposes of the Constitution.

The court also relied upon the test laid down in R.D. Shetty v. International Airports

Authoritylo9 and held that the Mumbai International Airports Authority is state under

article 12 of the Constitution. The court observed even if the authority is not state,

still judicial review can be exercised by the High Court under article 226, which

mentions "persons" and not 'state'. A person can be both natural and naturalized.

Therefore even the activities of a company registered under the Companies Act, 1956

can be checked under article 226. The power to review extends not only over

constitutional rights, but also rights under common law, judge made law, customary

law, or any other form of law. The importance of this decision lies in the fact that,

even in the changing times (as expressed in Zee Tele films case), the court has been

109 (1979) 3 see 489

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able to reinvent the decision of the Supreme Court in Electricity Board, Rajasthan

case and apply that to a completely new set of factsYo

It may be observed that the decision of the Bombay High Court is an exception to

otherwise receding interpretation to the concept of "sate". As the Supreme Court has

given restrictive interpretation it is natural that the court has also not been willing to

invalidate the process of implementing economic decisions of the government, even

on the grounds of violation of fundamental rights.

After the introduction of the new economic policy there is an increased participation

of private players in the economic sphere. So the guarantee of fundamental rights is

getting narrowed against the state. Can it be said that by merely increasing the share

of private enterprises the government can absolve itself from its responsibilities? It is

argued that the government cannot do so, and that the universal expansion of human

rights will ensure that fundamental rights are enforced even in the changing

circumstances.)))

Another component of the protection of fundamental rights is with regard to the

nature of legal instruments that can violate rights; this includes law as defined in

article 13, which has been interpreted to include, constitutional amendments as well.

We observe in chapter two this was frequently resorted to in the past to give effect to

economic policies. Therefore in the following section we shall discuss the

amendments to the constitution in the post reform era.

110 In this context we may mention the view of the Justice Mathew in Rajasthan Electricity Board v. Mohan Lal, AIR 1967 SC 1857. In that case he held that, public corporation is a new kind of institution, which sprang from the new social and economic function of government, and therefore instead of classifying that into the old legal category, new models should be adapted. The state being an abstract entity, how else is it to carry on its business activities mandated in the Constitution if not through agencies. All the agencies and instrumentalities of the state should also be construed as state and made liable for the violation of fundamental rights. Therefore while determining whether an entity is state or not, there is a need to look into the financial and managerial control exercised by the state government and also the nature of function carried on by the agency. If the nature of function is a kind of "public duty" then that has to be held to be state. III See M.P. Singh (Ed.), The Constitution of India, V.N. Shukla, Eastern Book Company, Lucknow, 2000, at p. 28-29.

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Economic Policies and Constitutional Adjudication since 1991

B. Amendment to the Constitution

In order to give effect to a policy, if there is a need to bring constitutional changes, the

legislature can do so after following the procedure prescribed under article 368 of the

constitution. Besides this formal process, the judiciary can also bring necessary

changes in the text of the constitution by interpreting it in ways, that can adapt the

constitution to the changing needs of the time. Indian constitutional history is witness

to a number of such amendments (done, both by the legislature as well as by judicial

interpretation) when the planned model of economic development was being

implemented. In order to facilitate the extensive role of state, amendments were

brought to curtail the freedom of the individual to carryon trade and business of one's

choice. State monopoly was also introduced and protected through constitutional

amendments. Constitution was the site for introducing economic policies in the past.

In this regard an important amendment pertained to the insertion of the 9th schedule to

the constitution, which delimited the exercise of judicial revieyv in a way which can

allow the legislature to use laws for bringing policy changes without risking it to be

reviewed by the courts. In the light of these facts we shall examine the constitutional

amendments since 1991.

i. Pattern of Constitutional Amendments

Since 1991, the constitution has been amended twenty nine times. Out of all these

amendments not even a single amendment pertaining to those provisions which were

amended in the past to give effect to the economic policies. For instance, article 19 (1)

(g), article 31 etc. remained unchanged, however as many as twelve amendments

were in the realm of affirmative action. In contrast to this in the pre reform era, as

many as eighteen amendments pertained to matters relating to economic policy

changes and only nine amendments pertained to affirmative action. Thus so far as the

focus of constitutional amendments is concerned there is a definite move towards

addressing the issue of affirmative action ( specifically on providing quota) in the post

reform period in contrast to the predominant focus of addressing economic matters in

the pre-reform era.

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Broadly speaking, we find that since independence there have been three rounds of

amendments. The first cycle of amendments pertained to property related matters, the

second round of amendments pertained to the establishment of supremacy of the

parliament over the judiciary and the third round pertained to matter relating to

affirmative action. In all the three rounds, amendments have generated a range of

interpretations. In cases where the interpretation has not been to the liking of the

parliament that has given rise to a series of further amendments. Therefore the overall

assessment of amendments and counter interpretations by the court gives rise to a

picture of a constant tussle between the judiciary and the legislature.

In Figure 4.1 we have shown the frequency of constitutional amendments from 1950

to 2008. We find that the average number of amendments per decade has not changed

radically. However due to the large number of constitutional amendments made in

1970s, particularly the 42nd amendment and the 44th amendment to the constitution

have pulled the average up.

Fig 4.1 Pattern of Constitutional Amendment Since 1950

No. oonstitutional provisionsAmended 25

20

15

10

5

o 1950-59 1960-69 197()' 79 1980-89 199().99 2000-08

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Economic Policies and Constitutional Adjudication since 1991

Table 4.1 Post-Reform Amendments to Constitution Articles: 1990-95 2000-2002 2003-2006

a. a. Modified 356,338,356,356,54 334,269,16,335,243M,55 81,82,170,330,268, ,239AA, 332,280, 28 ,81,82,170,330,332,16 338,332.75,164,15 0,323B,16,

b. b. Added 239AA,239AB 21A51A(K) 338,A361 B, 15(5) c. c. 270.45

Substituted d. d. Deleted 272

Schedule: e. Modified 9,8,9,9 10,8 f. Added 11,12

Part Amended IX inserted, IXA inserted

Table 4.1 provides detail information on the amendments, which pertains to the time

period when the amendment was made and also the provision which was amended.

These amendments have been done after the economic reforms were introduced. The

information pertains to amendments in select. provision on affirmative action and

matters of economic significance. Table 4.2 shows amendments in select

constitutional provisions, having significance for economic policy from 1950 till date.

This table very clearly shows that there have not been any modifications in these

provisions. It prompts is to explore for reasons for the decline of amendments in

matters relating to economic policy.

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ii. Impossibility of Amendments: Procedural Difficulties

It is often argued that post 1990 no single political party had dominance. It is a fact

that there has been growth in the number of political parties, many of which are

regional in nature. These numerous political parties have been able to play important

roles at the national level due to the emergence and continuance of coalition politics.

These political parties plurality of voices in society. Therefore it is easier to argue that

in the absence of any clear majority amending the Constitution was difficult.

Figure 4.1 shows that the concentration of constitutional amendments is more in

1970-80s and in 1980-90s. However the argument that after the emergence of the

coalition governments, due to lack of numerical majorities not many constitutional

amendments have been carried stand invalidated by the fact that, even 1990 onwards

there has been no sizable decrease in the number of amendment. Therefore the

argument of procedural impossibilities stands vitiated. There must be some other

reason behind not touching upon the provisions of the constitution dealing with

economic issues. The rationale for the same could be found in the fact that, though the

required majority could not be impossible, to get but arrival of consensus on a given

issue is of essence to any amendment. It might be relatively easier to get consensus on

a given issue, (notwithstanding the varied orientations of political parties), whereas it

might be difficult to get consensus on some other matter.

An analysis of the constitutional amendments since 1990s shows that though there is

no amendment on economic matters, there has been growing amendments on issues

pertaining to affirmative action. Thus the continuance of the trend of an average of

15.5 amendments per decade has been pulled up since 1990s solely by the huge

number of amendments relating to affirmative action. It is the single largest

contributor to the continuing rate of amendments.

Although the pattern of constitutional amendment suggests that the new economic

policies have not required amendment to the constitution, however the Supreme Court

has pronounced an important judgment which could have far reaching consequences

on the approach of the legislature to using constitution as a launching pad for

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Economic Policies and Constitutional Adjudication since 1991

implementing economic policies. In I.R. Coelho v. State of Tamil Nadu,1I2 a nine

judge bench of the Supreme Court held that, in view of the doctrine of basic structure,

the court can exercise judicial review even on amendments brought to the 9th schedule

to the constitution. The importance of this judgment lies in the fact that, in the era of

planned economic development, the 9th schedule was used as a safe haven to park

many potentially unconstitutional laws by the legislature, which was enacted to give

effect to any policy decision of the government, whereby the implementation of a

given policy shall not be stalled in order to ensure the implementation of a number of

policies, the legislature had added many important legislations in 9th schedule.

However after this decision, the complete prohibition imposed upon the judicial

review is removed to a certain extent. Therefore the legislature can no more take the

9th schedule as a safe haven to park laws on economic policies.

Thus it is evident that formal constitutional amendments have not taken effect which

could either have significant impact upon the economic policy formulation or which

has been influenced by any policy changes, nevertheless the judiciary has been

interpreting the constitution in a manner so as to keep it abreast to the changing

requirements of time. One' of such area where judicial interpretation is bringing

changes is article 14 of the constitution.

Most of the cases challenging the policy decisions of the government pertain to their

implementation. In pursuance to a number of policy decisions, the government is

engaged in the process of distributing benefits and right, which if not done in a fair,

reasonable and just manner may lead to violation of article 14 of the Constitution. A

policy measure may also violate the freedom of an individual to carryon trade and

business of one's own choice. Thus there is a need to analyze the cases where the

implementation of a government policy is alleged to be violative of the fundamental

rights. The violation could have resulted due to any constitutional amendment, statute

or by subordinate legislation. When violation of rights is checked vis-a-vis a

legislative measure the court examines two issues, first whether the legislature has the

legislative competence to enact a given law and second, whether the statute so enacted

is in consonance with the constitution. Similarly, while analyzing the executive

112 Appeal (civil) 1344-45 of 1976

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Chapter IV

action, the court has to examine, whether there has been proper delegation of power or

there is no been excessive delegation of power without any guidance whatsoever as to

the exercise of such power by the executive.1l3, whether the executive has exercised

its discretionary power in a reasonable manner, that no principles of natural justice

have been violated (which includes rule to be heard, notice, rule against bias, no one

can be a judge in one's own case etc.). Different standards have been set to determine

whether the legislative or executive action is beyond its limits and whether it has

resulted in violation of people's fundamental right. However it is important to analyze

the interpretation that this article has received after the economic reforms were

introduced.

C. Violation of Article 14 and the Scope of Judicial Review

Article 14 guarantees equality of law and equal protection of law. This right has been

held to be the cornerstone of any system based upon rule of law and has held to be

part of the basic structure of the Indian Constitution. 114 The equality clause has been

worded in a manner to include both the negative and positive aspect of equality.

While equality before law envisages that everyone is equal in the eyes of law and

excludes special treatment in whatsoever manner, on the other hand equal protection

of law is envisaged in the second part of article 14. This part is read as a positive

obligation on the state to ensure that equal protection is accorded to all by bringing

necessary social and economic changes.

There are various tests to check the violation of this right. The first test envisages that

legislative action would not amount to violation if that specifies the criteria for

classification. Thus classification was made permissible but class legislation was not.

This test was based upon the premise that people are different on many grounds.

Unless likes are treated alike and different people are not treated differently even a

law envisaging for equal treatment will amount to inequality.

113 In Re Delhi Laws Act, AIR 1951 se 332, it was held that Excessive delegation is impermissible in law. 114 Indra Sawhney v. Union of India,(2000) I see 168

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Economic Policies and Constitutional Adjudication since 1991

i. The Classification Test

This test is able to capture the inherent inequalities amongst people and the right of all

of them to receive equal treatment. It is argued that, classification is permissible in

order to ensure equality of treatment to differently placed people. However the court

has held that the classification must be founded on an intelligible differentia which

distinguishes person or things that are grouped together from others left out of the

group, and the differentia must have a rational relation to the object sought to be

achieved by the statute. In this sense differentiation does not necessarily amount to

discrimination.

One of the basic principles laid in this regard is that, the court shall always presume

the constitutionality of a statute unless it is proved otherwise. I IS It is the obligation of

the person challenging the constitutionality of a statute on the grounds of violation of

equality clause to prove that, not only has he been treated differently but also he has

been treated differently in comparison to people similarly situated. I 16 This principle is

. d' b f 117 recogmze III anum er 0 cases.

The onus is not discharged only by raising a doubt in the mind of the court, but by

satisfying the court that the authority or the body which had been vested with the

power to take decisions has adopted a procedure which does not satisfy the test of

article 14 of the Constitution or is against the provisions of the statute in question or

has acted with oblique motive or has failed in its function to examine each claim on

its merit on relevant consideration. "Under the changed scenarios and circumstances

prevailing in the society courts are not following the rule of judicial self-restraint. But

at the same time all decisions which are to be taken by an authority vested with such

power cannot be tested and examined by the court"(emphasis added).,,1l8Thus this

115 The court in B.B. Rajwanshi v. State of Uttar Pradesh (1980) 2 SCC 415 has clarified that the· presumption of Constitutionality can not be stretched to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile and discriminating treatment. 116 State of Maharashtra v. Basanti Bai (1986) 2 SCC 516, Municipal Corporation v. Jan Mohd. (1986) 3 SCC 20 117 All India Sainik Schools Employees Association v. Sainik Schools Employees Association v. Sainik Schools Society 1989 Supp (1) sec 205, 212, Builders Association ofIndia v. Union ofIndia (1989) 2 sec 645, Direct Recruit Class II Engineering Officers Association v. State of Maharashtra (1990) 2 SCC 715, Prem Chand Som Chand Shah v. Union ofIndia (199]) 2 SCC 48 118 Delhi Science Forum v. Union ofIndia, (1996) 2 sce 405

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advocates for providing more leeway to the legislative and executive authorities, and

eh burden of proof is on the person challenging such action.

However in D.S. Nakara v. Union of India I 19 the Supreme Court had observed that

the burden of proof should not lie with the person alleging the violation of rights but

should be with the state, which would have to prove that both the criteria of

reasonable classification have been complied with.

A balancing approach on the question of burden of proof has been adopted by the

State of Maharashtra v. Manubhai P. Vashi l20, where the burden of proof is shared by

both the person alleging arbitrariness as well as by the state. While the person alleging

violation has to prove that the impugned state action is arbitrary as it is not based

upon any discernible principle, 12l once that is proved it is for the state to prove that

the decision is made after having referred to relevant material. The court can go into

the said material relied upon by the state.

The burden of proof is heavy on any person challenging the decision of the

government, because, policy decisions are not only considered to be decision taken in

the interest of the public but also considered to be complex matters requiring technical

expertise. Public interest is a concept open to multiple interpretations and keeps

. changing with the time. The court has also accepted its ignorance of technical issues

on a number of occasions. In such circumstance, the presumption of validity of the

policy decision of the government is very strong and a proportionally heavy burden of

proof has to be discharged by the person challenging it. It is evident from the fact that,

even though the court has been reiterating the applicability of constitutional and

administrative law principles in the decision making process of the government,

nevertheless there has not been many occasions when the validity of a policy has been

struck down by the court,1220n these grounds.

119 (1983) 1 sec 305 120 (1995) 5 sec 730 121 Netaj Bag. Union of India,(2000) 8 sec 262 122 Center for the Public Interest Litigation v. Union of India, Writ Petition (civil) 171 of 2003 and Indian Thermal v. Union of India, (2000) 3 sec 379

197

Economic Policies and Constitutional Adjudication since 1991

In the matter of ITDC123 workers union, the employees contended that they form part

of a cadre that is being maintained by ITDC and even a seniority list is maintained

therefore they should not be treated differently from their counterparts working in

Ashok Tours and Travels where a voluntary retirement scheme has been envisaged as

a part of the disinvestment strategy. Therefore they were demanding a voluntary

retirement scheme to be floated as a part of the divestment of Hotel Agra Ashok as

well in the absence of which they would be subjected to unequal treatment.

However the court rejected such a contention and held that, voluntary retirement

scheme was not a part of the share purchase agreement between ITDC and Yarnuna

View Hotels Pvt. Ltd. Therefore that cannot be claimed by the workers of ITDC. The

court relied on Board of Trustees, Visakhapatnam Port Trust v. T.S.N. Raju l24, where

it was held that, to approve or disprove an application for voluntary retirement scheme

(VRS) is a matter of absolute discretion to be exercised by the concerned authofity.

The authorities have absolute discretion whether to accept or reject the request of the

employee seeking voluntary retirement under the scheme. There is no assurance that

such an application would be accepted without any consideration. The Supreme Court

concluded that, "We, therefore, have no hesitation in corning to the conclusion that

the VRS was not a proposal or an offer but merely an invitation to treat and the

applications filed by the employees constituted".

In view of the conclusion in the Port Trust case, the court held that offering voluntary

retirement scheme is an absolute discretion of the employer. Accordingly the

employees of the Agra Ashok hotel cannot demand for the scheme to be offered to

them. Even though the employees cannot on principle demand such a scheme to be

offered, can they be discriminated against employees of ITDC working in other hotels

but are a part of the same cadre that they belong to? Can there be any reasonable

classification between employees of the same cadre working in different ITDC hotels

for the purposes of offering voluntary retirement? The court has responded by holding

that the contract entered into by the government in case of Hotel Agra Ashok does not

envisage such a scheme, so they cannot demand so, where as such a scheme was a

part of the agreement to disinvest in Ashok Tours and Travels. Here the application of

123 2006 Indlaw SC 887 124 2006 (9) Scale 55

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the test could be based In that sense the classification is justified as the government

has chosen to negotiate the disinvestment agreement in two different ways. Can the

government enter into any agreements that it wishes to, or the contact has to be

reasonable, fair and just?

In a number of cases the court has held that the government is still a government

when it enters into contract, therefore the power of the government to' enter into

contract is limited by the constitutional principles of equality and the constitutional

obligations envisaged in the directive principles of state policy. In view of these

constitutional obligations, the government cannot differentiate between employees

falling into the same category and forming a cadre, unless the object sought to be

achieved demands so. Here the goal that was sought to be achieved was

implementation of the policy of disinvestment and there is no rational nexus between

disinvestment and the classification of employees as it is done in the instant case.

Since the decision in Baleo case where the validity of the disinvestment policy was

upheld the court is not inclined to go into the intricacies of this complex issue. In view

of the assignment of absolute discretion to the employer, the court has negated the

contention that equality is about, similar treatment for similarly placed individuals;

rather it has emerged to be a matter of discretion. The court has also not followed the

standards of review laid down in Nakara case, where the burden of proof is on the

state. In a way the reluctance to intervene in policy matter has taken its toll on the

procedural fairness of the economic reforms.

The court has also not applied the classification test in the case of Zippers

Karamchari v. Union of India,125 where it was contended that, the policy of the

government to de-reserve a section of the zip fasteners industry from the small scale

sector wa~ invalid. Though zip fastener was reserved for the small scale sector, a

distinction was drawn between zip fasteners manufactured in a small scale industry

and manufactured in an integrated plant. It was contended that the distinction between

integrated plant and small scale sector is arbitrary because the ultimate product is

same. And since the zip fastener has been reserved for the small scale industry no

exception can be carved out of that to permit a foreign company to set up an

125 1998 INDLAW SC 632

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integrated plant to produce the same. It was contended that such an act of the

government violates the provisions of the Industries Development and Regulation

Act, 1951 under which reservation of industry has taken place. Justice Kurdukar and

Justice Agarwal did not explicitly discuss this issue on classification, whereas Justice

Rajendra Babu held that a zip fasteners manufactured in an integrated plant will be

different and it cannot be held to be what the section in Act wants to oppose and it is

allowed under section 29 B (2 B) of the Act.

In this case the court observed that policy decisions cannot be looked into and

therefore, whether the new industrial policy violates the Industries Development and

Regulation Act or not cannot be looked into. Once that is denied the conflict between

the objectives to be attained by the new industrial policy and the Act cannot be

examined. Since the objective of the Act in another sense becomes irrelevant for the

court, the focus shifts towards examining whether the classification so made is such

that it will attain the objective of the Industrial policy resolution.

The objective of the industrial policy resolution is to get access to high technology,

foreign exchange and access to would market. The court held permission granted to a

foreign company which has a reputation in the zip manufacturing sector will

automatically be considered to be valid, more so when attainment of all the three

goals is necessary but need not be attained simultaneous. In such circumstances the

classification can be said to be valid.

It may be observed that the entire discussion is flawed as it has not addressed the main

issue, viz., the extent of conflict between the Act and the industrial policy. This is also

flawed as the court has not tested the criteria of classification and nexus between the

differentia and the objective sought to be achieved. The court also has not taken into

consideration the directive principles of state policy which envisages that the

resources of society should be so distributed that it subserves common good and does

not lead to concentration of ownership in few hands. Moreover the real impact of

carving out integrated plants from the zip fasteners industry has the effect of de­

reserving the industry itself. Because, the integrated plant will have economies of

scale which the small scale units will not have. Thus without many changes in the

categories of reserved industries, actual impact of de-reservation could be attained.

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Allegations were also made that de-reservation of industry amounts to violation of

article 19 (1) (g) of people employed therein. However without going into these

important questions the court has upheld the validity of the notification. The court has

done so inspite of the fact that in Bennett Coleman and Company v. Union of India 1 26

the court had held that the direct effect of a law on the fundamental right of a person

should be examined and if the law violates such right, the law should be struck down.

In order to ascertain whether a right is violated or not, the court has to look into the

nature of the right that is alleged to be violated, the interest of the aggrieved party and

the degree of harm resulting from state action. 127 In this case the Supreme Court held

that, object of the act as well as pith and substance of the Act are irrelevant

considerations to determine whether the Act infringes upon any fundamental right or

not. The court clarified that, 'direct' explains the quality of the effect rather than

directness of subject matter. Directness can only be assessed when an action of the

state prohibits a fundamental right, and nbt when what the state action prohibits is not

a fundamental right but something else. In such cases the effect is only indirect.

This test was further modified by Justice Bhagwati in Maneka Gandhi v. Union of India l2S where he added "inevitable" to the 'direct effect' test. Thus, what the court

must consider is the inevitable and direct effect of an action of the state. It was

believed that addition of inevitable provides clue to the intention of the legislature,

which otherwise is always believed to be serving the 'public interest' .129 So far as

validity of Constitutional amendments is concerned there is a renewed emphasis on

not only the effect on right but also on the essence of right. The question that arises is

whether fundamental rights can be subjected to the limitation of interpretative

principles or should be protected even if it is violated indirectly?I30 The Constitution

and particularly the fundamental rights should be generously and purposively

126 (1972) 2 SCC 248 127 Singh, M.P. ed. 2000. The Constitution of India. Lucknow: Eastern Book Company. 128 (1978) 4 SCC 494 129 In a way this test suspects the seemingly irrefutable presumption that the legislature always acts in the interest of the public, rather it makes the presumption refutable in cases material can be provided against such a presumption. 130 Singh, M.P. ed. 2000. The Constitution of India. Lucknow: Eastern Book Company. See page 34 130 (1978) 4 SCC 494

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construed and the core concern of the court is to see that the actual effect of an

impugned law on guaranteed fundamental rights. l3I

In the absence of examination on any of these counts, the court decided the matter on

the basis of the report of an advisory committee, which had recommended for the

establishment of integrated plants. Along with these reports the court relied upon

business principles to determine that integrated plant is a different category from the

small scale industry.I32 Thus a case demanding application of the classification test

was rendered blank by the court.

While in this case the classification test was not applied, in another case the court

struck down a decision of the government to implement e-auction in determining the

price of coal to be arbitrary as that failed to distinguish between buyers of coal who

are consumers and traders. I33 Further no classification was also made between

industries in the core sector and in the non-core sector, which could include industries

in the small scale sector as well. In the absence of any such distinction being made, all

the big players were held to be taking benefit of e-auction at the cost of the small

players in the market. In this case the classification test was applied to come to the

conclusion that e-auction is arbitrary and takes away the level playing field. The

doctrine of level playing field has emerged as a test to determine violation of article

14 of the Constitution. We shall now discuss the non-arbitrariness test and the

doctrine of level playing field to see how the Supreme Court has applied these tests in

the post reform era.

ii. Non-Arbitrariness

The second test to determine whether article 14 has been violated or not is the test of

non-arbitrariness. While explaining the test in E.P. Royapa v. State of Tamil Nadu I34

Justice Bhagwati held that, "equality is a dynamic concept with many aspects and

1311.R. Coelho v. State of Tamil Nadu, AIR 2007 SC 861, see also Sakal Newspaper v. Union ofIndia, AIR 1962 SC 305, where the Supreme Court held that, "while considering the nature and content of fundamental rights the court must not be too astute to interpret the language in a literal sense so as to whittle them down. The court must interpret the Constitution in a manner which would enable the citizens to enjoy the rights guaranteed by it in the fullest measure." 132 Justice Kurdukar and Agarwal relied upon the business principle to come to the conclusion where as Justice Rajendra Babu relied upon both business principle as well as classification test. 133 Ashok Smokeless Coal Ltd. v. Union of India, Appeal (civil) 5302 of 2006 134 (1974) 4 SCC 3

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dimensions and it cannot be cribbed, cabined and confined within the traditional and

doctrinaire limits." The court equated lack of equality with arbitrariness and held that

"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 monarchy." In this

case the court observed· if an act is arbitrary then it is implicit in it that it is unequal

both according to political logic and constitutional law and is therefore violative of

article 14.

Inequality and arbitrariness are conceptually different135and one always does not lead

to the other. Inspite of the differences between these two concepts they have been

equated for the purposes of devising the test of non-arbitrariness. This test has been

applied in cases where an authority in exercise of its discretionary power is said to

have exceeded its limits. Thus the court can examine whether there has been proper

delegation of power or there is excessive delegation without any guidance, whether

the executive authority has exercised its discretionary power in a reasonable manner

which furthers public good.136

Since the exercise of power by an administrative authority is subject to a law made by

the legislature, arbitrariness is always checked vis-a-vis the provisions of that statute

which authorizes or empowers the authority. In order to ascertain the grounds on

which the discretionary power is exercised, the court can look into the relevancy of

material if not the sufficiency thereof. In the Cellular Operators Association137 the

court held that the material relied upon by the executive authority can be looked into

by the court. The court observed that non-consideration of relevant materials can

vitiate the decision and would constitute a substantial question of law on account of

which the Supreme Court can intervene.

In this test, it is not necessary to prove that an action of the government has violated

fundamental rights of any particular person, the fact that it is arbitrary is sufficient for

the court to invalidate such action. Judicial review can be exercised not only when

fundamental rights are violated but also when an authority having public duty or

135 Justice B.N. Srikrishna,Skinning a Cat (2005) 8 SCC (1) 3 136 Consumer Action Group v. Sate of Tamil Nadu (2000) 7 SCC 425 137 2002 Indlaw SC ] 576

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function acts unreasonably, unjustly, unfairly, arbitrarily, in violation of principle of

natural justice or the action is malafide in nature. 138

Therefore any action that is arbitrary invariably leads to violation of article 14. Article

14 pervades through all state activism including policy matters. According to this test

the executive has the discretionary power to change the policy, however that is subject

to the test that it is being carried in a fair, just and reasonable manner. In other words

the state must act validly for a discernible reason, not whimsically for any ulterior

purpose. The wide sweep of Article 14 and the requirement of every State action to

qualify the test of non arbitrariness is an established principle. 139 The judiciary can

exercise judicial review in all such cases where arbitrariness is alleged.

The test of non-arbitrariness has been taken forward in Maneka Gandhi v. Union of

India. 140 In this case the court observed that the exercise of judicial review can be

extended to the executive action. Doing away with the concept of exclusivity of

fundamental rights the court held that rights guaranteed under articles 14, 19 and 21

are not exclusive and are connected with each other. This had a major impaCt on the

scope of judicial review. Article 21 which provided that right to life cannot be taken

away without following a procedure established by law can now be scanned for its

confirmation to procedural fairness. Thus the court bridged the gap between

procedure established by law and due process of law. Above all the principles of

natural justice were read into these fundamental rights.

The applicability of principles of natural justice to the policy decisions remains

doubtful as there have been differing views on the issue. On the one hand the these

principles have been explained as brooding omnipresence in all administrative actions

on the other it has been held that these principles have no applicability in economic

policy decisions.

Applicability of these principles has been especially emphasized when the decision of

any authority is going to have adverse civil consequences on any person, that person

138 Comptroller and Auditor General of India v. K.S. Jagannadhan, (1986) 2 SCC 679, R. D. Shetty v. International Airports Authority of India, B. Ramakichenin v. Union of India, (2008) I SCC 362 139 Union of India and another vs. International Trading Co. and another - (2003) 5 SCC 437 140 (1978) 1 SCC 248

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should be given the protection of principles of natural justice.141 The right of being

heard is an important ingredient of the principle of natural justice. However in Baleo

disinvestment case the demand of the employees to be given a hearing was rejected by

the court. The employees in that case were contending that due to disinvestment, their

fundamental rights under article 14 and 16 are being taken away which shall result in

adverse civil consequences and therefore the employees should be provided with the

right to be heard. However the court rejected the demand on the ground that In

policies of economic reforms principles of natural justice have no role to play.142

The reason for the, inapplicability for these principles was said to be the difference

that exist between judicial, quasi judicial and executive decision making. The court

was of the view that the right to be heard can be claimed only in judicial or quasi

judicial decision making. Since, the policy of disinvestment is considered as an

executive decision, adherence to principles of natural justice cannot be claimed by the

employees. Accordingly the principles laid down in National Textiles Worker Union

v. Union if India 143 was held to be inapplicable to the present case.

It is pertinent to note that the distinction between quasi judicial and administrative

decisions was removed in A.K. Kraipk v. Union of India l44 • In that case the court held

that, "if the purpose of these rules of natural justice is to prevent miscarriage of justice

one fails to see why those rules should be made inapplicable to administrative

enquiries. Often times it is not easy to draw the line that demarcates administrative

enquiries from quasi judicial enquiries .... Arriving at a just decision is the aim of both

quasi judicial enquiries as well as administrative enquiries. An unjust decision in an

141 Compliance with principle of Natural Justice has also been emphasized by the Supreme Court in Dr. Bina Pani Devi, (AIR 1967 SC 1269) where it was held that an administrative order or decision in matters involving civil consequences has to be made consistently with the rules of natural justice. See also Mohinder Singh Gill (AIR 1978 SC 851), Swadeshi Cotton Mills v. Union ofIndia, (AIR 1981 SC 818) 142 In Mardia Chemicals v. Union of India, 1998 INDLA W SC 632 the supreme court held that principles of natural justice is not applicable in a case where the debtor owes money to the creditor and it is within his knowledge how much he owes. Therefore the secured creditor need not give notice to the debtor before taking action under the Securitization Act. See also Ashoka Smokeless Pvt. Ltd. v. Union of India, Appeal (civil) 5302 of 2006 where the Supreme Court held that even in economic maters principles of natural justice are applicable. Principle of natural justice will apply in all such cases where there is some right which is likely to be affected by an act of administration. Good administration, however, demands observance of doctrine of reasonableness in other situations also where the citizens may legitimately expect to be treated fairly. 143 AIR 1983 SC 75 144 (AIR 1970 SC 150)

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administrative enquiry may have more. far reaching effect than a decision in quasi

judicial enquiry."

However in Baleo case the court held that violation of principles of natural justice

cannot be a valid ground to vitiate the policy decision. If the decision is otherwise

illegal being contrary to law or any Constitutional provision, the person affected, can

impugn the same, but denying a pre-decisional hearing cannot be a ground for

quashing the decision.

The decision of the court in Baleo is not in consonance with Maneka, Gandhi v. Union

of India, 145 where the Supreme Court had laid emphasis upon the right to be heard and

had held that it is an important ingredient of the right to life and therefore even if the

petitioner was deprived of pre-decisional hearing the court offered post decisional

hearing to the petitioner. 146

Another aspect of the principle of natural justice is the rule against bias. 147 Bias could

be of several kind, viz., pecuniary bias, personal bias, subject matter bias,

departmental bias, and preconceived notion bias. This principle ensures that a

decision making authority is independent, impartial and neutral and does not take any

decision under the influence of any known or unknown biases. If bias is proved, the

decision can be struck down as arbitrary as it can no more be said to be based upon

relevant considerations. It is one of the important components of the principles of

145 ( 1978)4 SCC 494 146 In this case the Supreme Court held, "equality and arbitrariness are sworn enemies, one belongs to the rule of law while the other belongs to the whim and caprice of an absolute monarch. Article 14 strikes at arbitrariness in state action and ensures fairness and equality of treatment. The principle of reasonableness which legally as well as philosophically is an essential element of equality or non­arbitrariness 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." Further in the context of that particular case the court observed that 'it is true that the passport Act does not provide for giving reasonable opportunity to be heard to the holder of the passport." But the court goes on to lay down a general principle that, "but that is not conclusive of the question. If the statute is silent the law may in a given case make an implication and apply the principle of natural justice which is a great humanizing principles intended to invest law with fairness and to secure justice and over the years it has grown into widely pervasive rule affecting large areas of administrative action. 147 Messy, I.P. 1995. Administrative Law. Lucknow: Eastern Book Company., p.146 writes "Bias means an operative prejudice whether conscious or unconscious in relation to a party or issue. Therefore rules against bias strikes against those factors which may improperly influence a judge in arriving at a decision in any particular case."

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natural justice and by judicial interpretation of these principles into article 14, it has

also become a part of the equality jurisprudence.

In a number of cases pertaining to grant of largesse bias has been alleged against the

government authorities. For instance in Tata Cellular v. Union of India,148bias was

alleged against one of the recommending authorities involved in the process of

evaluating tender documents, which were invited for operating cellular mobile

telephone services in four metropolitan cities in India. It was alleged that the son of

the recommending authority was an employee in one of the applicant firms. While

rejecting the allegation of bias the court invoked the doctrine of necessity to hold that

no personal bias can be alleged as the person concerned was part of the evaluation

committee by virtue of his official obligation. Further that person was only a part of

the recommendatory body and not the final authority to take decision. Moreover the

court analyzed the selection procedure of his son into the said firm and observed that

he had got the appointment through merit and therefore existence of personal bias

cannot be established.

Bias of any kind is difficult to prove. In cases where personal bias is alleged, the test

to be applied is whether there is real likelihood of bias. If a reasonable man in

possession of the relevant information would think that the decision is biased then the

court can strike down the decision. It is argued that, it is not the judge who has to ask

the question to himself but the judge has to analyze bias from the perspectives of a

reasonable man to come to the conclusion whether bias is present or not. Though the

real likelihood of bias cannot be eliminated in the present case, however since the

person concerned was not the final decision making authority the court preferred

exonerating him from these allegations. We find that notwithstanding the past

precedents which had emphasized upon the principles of natural justice, in Balco as

well as Tata Cellular it was held that these principles are inapplicable.

Arbitrariness has often been used as a ground to strike down executive actions. Rarely

has it been used against legislative measures. However it was used in a case

challenging the constitutional validity of the Securitization Act. The validity of the

148 (1994) 6 see 651

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Act was contested in Mardia Chemicals v. Union of India. 149 A number of provisions

were alleged to be violative of the Constitution, especially section 13 and 17 which

hindered access to judicial forums. While the court upheld the Act, it struck down

section 17150 to be unconstitutional. This provision provides that 75 percent of the

claim amount should be deposited with the tribunal by the debtor prior to contesting

the claim amount. The court struck down this provision on the ground that it is

arbitrary.

Irrespective of the decision of the court in Maneka Gandhi, non-arbitrariness was still

not used as a separate ground to invalidate legislation. I51 But a challenge could be

sustained if there were some constitutional infIrmities. This is based on the

assumption that Constitutionality of legislative actions are to be presumed unless they

are shown to be legislating "with an evil eye and unequal hand,,152 Thus the rationale

for lesser use of this test to strike down legislative enactment is, unlike the executive

decisions, where the decision can be tested vis-a-vis a legislative enactment, in this

case the validity of the action has to be tested vis-a-vis the Constitution, which

envisages the competence of the legislature. And more often the Constitutionality of

the legislative action is presumed, unless it is proved otherwise. I53

In this case while striking down the provision the court did not look for a higher law

to trace out the reference point vis-a-vis which the provision is said to be arbitrary.

Therefore court did not rely upon the Constitution to justify the existence of

arbitrariness. Since judicial review is a part of the basic structure of the Constitution,

the court could have justified the invalidation of the provision on the ground that the

provision takes away judicial review and thus violates the basic structure of the

149 1998 INDLAW SC 632 150 It may be noted that the doctrine of severability is one of the established principles of interpreting the validity of a legislation. According to this doctrine, if the valid part of the Act can sustain after the invalid part is severed then not the whole Act but the invalid part should be deleted and rest of the Act is valid. lSI State of A.P. v. Mc Dowell(1996) 3 S.C.C. 709, Khoday Distilleries v. State of Kamataka (1996) 10 SCC 304. 152 A. Thangal Kunju Musaliar v. Venktachalam PoUi, AIR ]956 SC 246 153 There could be colourable exercise of legislative power. However this doctrine has not been followed consistently by the Indian Supreme Court.

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Constitution; instead the court relied upon its own subjective understanding as to what

amounts to arbitrariness and struck down the relevant provisions in the securitization

law.

In view of the doctrine of separation of power and the strong presumption in favour of

the constitutionality of a statute, the non-arbitrariness test is often considered as a not

so strong test to invalidate a law passed by a competent legislature. This test has been

argued to be extra-constitutional as it has clearly been kept outside the Constitution.154

It is apparent from the debates of the constituent assembly that the framers of the

Constitution had intentionally kept the du~ process clause outside the realm of judicial

review. They were influenced by the American experience, where the judiciary

empowered with due process clauses had intervened in the process of economic

policy reforms. In order to avoid such a situation in India the framers had opted for

the 'procedure established by law', which was borrowed from the Japanese

Constitution. However due to gradual bridging of gap and the introduction of the non­

arbitrariness test, there hardly remains any difference between procedure established

by law and due process of law. ISS

Thus it is apparent from the above discussion that the test of non-arbitrariness is often

used in the case of executive actions by the judiciary. Judicial review of

administrative action can be exercised on the grounds of illegality, irrationality,

procedural impropriety, proportionality, unreasonableness. IS6 The court can exercise

judicial review at two stages of exercise of discretion, fIrst at the stage of delegation

of discretion and second at the stage of exercise of discretion. At the fIrst stage, when

discretionary power is delegated the court can analyze whether proper delegation has

been made or the delegation has led to excessive delegation which then leads to

154 See Srikrishna, Justice B. N. 2005. "Skinning a Cat." SCC Journal, 8:3, see also Chadrachud, Abhinav. 2008. "How Legitimate is Non-Arbitrariness? Constitutional Invalidation in the light of Mardia Chemicals v. Union ofIndia." Indian Journal of Constitutional Law, pp. 179-91.p.179-191 and T.R. Andhyarujina, The Evolution of Due Process of Law, in 'Supreme But Not Infallible: Essays in Honour of the Supreme Court of India' edited by B.N. Kirpal et al. (Oxford University Press, 2000) 197-198, H.M. Seervai insisted that to equate equality and non-arbiatriness is a logical fallacy, in H.M. Seervai, 'Constitutional Law of India' (4th ed. vol. 1 1994) p.439. Similar was the view of Shourie, Arun. 2001. Courts and their Judgements. Delhi: Rupa.see page 402, where lie observed that rhetoric has been taken as the rational of the decision. 155 Maneka Gandhi v. Union ofIndia, (1978) 4 SCC 494 156 Messy, I.P. 1995. Administrative Law. Lucknow: Eastern Book Company.

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violation of fundamental rights article 14. At the second stage, the court can see

whether the authority on whom discretionary power is vested upon has exercised such

discretion properly or has failed to exercise discretion. Here proper exercise of

discretion would mean and include, taking into consideration relevant factors and

leaving out the irrelevant ones, exercising the power in a reasonable, fair, just and

bonafide manner. In all cases where the legislature has not provided even a skeletal

policy and there has been excessive delegation or the executive authority while

exercising such delegated power exercises discretion in a manner that is contrary to

law, the court can intervene and strike down such executive action.

Thus the executive can exercise discretion in a reasonable manner and the subjective

satisfaction of the executive authority can be struck down on the ground of

arbitrariness. This issue was raised in Ojas Industries v. Oudh Sugar Mills157• In this

case the exercise of discretion on fixing minimum distance between two sugar mills

was alleged to be lacking any objective criteria. However the court held that

determining the distance is an objective criterion. It was alleged that provision

regarding minimum distance between two sugar mills is not an objective criteria.

In this case a press note was released by the government concerning de-licensing of

Sugar Industry, which was alleged to be violative of article 14 of the Constitution.

This press note was issued in view of the decision of the central government to delete

sugar from compulsory licensing under the Industries (Development and Regulation)

Act, 1951. In order to avoid unhealthy competition among sugar factories to procure

sugarcane, a minimum distance of 15 KMs was prescribed between an existing sugar

mill and a new mill. Later on the Sugarcane (Control) (Amendment) Order, 2006 was

issued which laid down effective steps to be taken to set up an unit, which included

steps such as purchase of required land in the name of the factory, placement of a firm

order for purchase of plant and machinery for the factory, payment of advance or

opening of letter of credit with suppliers, commencement certificate of civil work and

construction of building, sanction of requisite term loans from the banks or fmancial

institutions and any other step prescribed by the Central Government which are

effective steps to set up an unit. Since it was envisaged under these provisions that if

157 Appeal (civil) 1730 of 2007

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one memorandum has already been filed for a certain location, any memorandum

filed thereafter shall be put on hold before effective steps could be allowed to be taken

thereafter.

The prohibition to take effective steps to set up a unit was alleged to be discriminatory

and not based upon reasonable facts, since distance between two units cannot be said

to be a rational consideration on the basis of which taking effective steps can be

prohibited. The court negated such a contention and observed that sugarcane is scare

and therefore minimum prescribed "distance" should be observed between two units.

This criterion is based upon the principle of demand and supply. Therefore the

criterion is not without any consideration. IS8 This decision is evident of the fact that, if

the decision of an authority is based upon relevant considerations the court will

uphold that, where as if the decision is not based upon any relevant consideration the

court can strike it down.

The question remains, whether the court can go into the material relied upon by the

authority or not. There are differences of opinion on this. In Delhi Science Forum the

court emphasized upon the sufficiency of material, because as per the court subjective

satisfaction is a misnomer. In the case of Ojas industries the court emphasized upon

the relevancy of the material. However in most other cases the court has presumed the

validity of the legislative and executive action and refuses to interfere with the

decision. In such circumstances, there does not seem to be any clear picture emerging

out of these decisions.

Thus, in matters of economic policies, the court has not relied on the principles of

non-arbitrariness in a consistent manner. Though the court· has reiterated these

principles in every case, the application thereof is not consistent and subject to the

exercise of judicial discretion. One trend that emerges from these cases is irrespective

of the application the principles the court has invariably upheld the decision of the

executive authorities in matters of policy decisions. Though the court has not been -

relying upon either on the classification doctrine or on the non-arbitrariness doctrine,

158 In Daulat Ram v. State, AIR 1990 ALL 30, the Allahabad High Court had struck down a notification under the essential commodities Act, 1955 which provided that no license can be granted for regular diesel outlet within the 5km. radius of an existing outlet.

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it has been reiterating the importance of article 14 in a number of cases. The court has

been doing so to invoke the doctrine of level playing field, which has emerged as a

new facet of the right to equality jurisprudence.

iii. The Doctrine of Level Playing Field

In the wake of the new economic policy the Supreme Court has been interpreting the

right to equality in a new light. Instead of examining whether the action of the

legislature and the executive is based upon reasonable classification or not and

whether or not such actions are non- arbitrary the court has been stressing upon the

need to provide a level playing field. What does level playing mean and for what

purpose a level playing field is needed? What is the goal that is to be attained?

Answers to these questions are essential to understand the applicability of this

doctrine to the process of economic reforms as well as to understand the justification

of having this doctrine as a facet of right to equality.

There are two kinds of views on why the doctrine of level playing should become a

part of the right to equality. Two different kinds of goals have also been advocated.

While on the one hand it has been justified on the ground of equal access to market,

alternatively there have been demands for substantive equality and justice.159 While

the first justification demands a neutral level playing field, the second justification

demands tilting the level playing field for those who are in a disadvantaged position.

Thus, depending upon the goal that is sought to be achieved the level playing field

would be required to remain neutral or tilted. The doctrine of classification discussed

above can be said to be an argument for equality, which lay emphasis upon tilting the

level playing field.

The doctrine of classification is based upon the premise that people are inherently

different and equality can only be achieved if likes are treated alike and unlike are

treated differently. If for the said purposes people are to be treated differently, that is

permissible provided there is an intelligible differentia and a rational nexus between

the object sought to be achieved and the basis of classification. This is a 'tiered'

159 Kennedy, Sheila Suess. 2003. "Tilting the Level Playing Field." Journal of Law and Policy, pp. 495-523.

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approach of protecting equality where the method of classification, the object sought

to achieved etc. becomes different tiers through which the court scans through an

action of the legislature. In this method it is believed that real equality can only be

attained if the level playing field is not neutral but tilted towards those who need

special protection to stand at par with others, for being able to compete.

Since in this method the level playing field has to be tilted in favor of those who are in

the minority or who are underprivileged in society, this method of ensuring equality is

goal oriented. Here the relation between the means and ends is analyzed in detail as

ends justify the means and not vice versa. This test can be said to be based upon an

egalitarian concept, where not formal but substantive equality is aspired for. Thus in

India the doctrine of level playing field rooted in article 14 is based upon the idea that,

"the proposition of law that the doctrine of equality is attracted not only when equals

are treated as unequal but also when unequal are treated as equals and that Article 14

is offended both by finding difference when there is none and by making no

difference when there is one is unexceptional. But the rule of equality is intended to

advance justice by avoiding discrimination."I6o

The constitution of India also permits tilting the level playing field. Article 15 and 16

of the Constitution guarantees substantive equality to be given to women, scheduled

class and scheduled tribes, other backward classes and socially and educationally

backward classes and permits special provision to be made for the benefit of these

different categories of people who require positive state action

An example of the egalitarian basis of the doctrine of level playing field is Mis

Ashoka Smokeless Coal Ind. P. Ltd. & Ors v. Union of India. 161 In this case E-Auction

of coal was held to be unconstitutional. The court observed that, the intention behind

the introduction of e-auction of coal is to merely gain profit. Though that cannot be

denied to public sector enterprises, profit cannot be the sole criteria for upholding e­

auction. Notwithstanding the numerous benefits that e-auction can bring, it is found

that, it has proved to be discriminatory against the small scale industries as well as

against the non-listed, non-core buyers of coal. Since players in both the core sector as

160 In Mohd. Usman v. State of Andhra Pradesh,AIR 1971 SC 1801 161 Appeal (civil) 5302 of 2006

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well as non-core sector industries are participating in the e-auction the small players

in the coal market are compelled to pay more than what they would have otherwise

paid. Further e-auctions take place frequently, leading to price fluctuations, which has

had adverse impact upon the small scale players who need coal to run their industry

on a regular basis, but have limited financial resources to meet the fluctuation in the

price of coal.

It was observed that too much fluctuation in price, along with the lack of

classification amongst the buyers of coal (as consumers and traders) has adversely

affected a section of the coal buyers. Therefore e-auction has failed to provide a level

playing field to all. While the doctrine of level playing field means providing equal

access to market and ensuring competition in market, the kind of discrimination that

has resulted due to e-auction has led to violation of right to equality.

According to the court, the government which has monopoly over coal cannot be

allowed to frame any policy which amounts to violation of article 14.162 In the present

case the tilting 'of level playing field was advocated because, according to the court,

the obligation of the government when it conducts business is different from a private

entity whose only motive is to do business and make profit. The government is under

the constitutional obligation to give effect to the directive principles of state policy,

especially article 38 and 39 (b) and (c), which states that the material resources of the

society should be so distributed that it does not lead to concentration of ownership. 163

The government is also obliged to comply with these principles because; it has

committed itself to serve these causes in the preamble to the nationalization statute

under which coal has been exclusively assigned to the state.

This decision can be contrasted with the decision of the court in Zipers Karamchari,

where the court has upheld the carving out of exceptions in favour of integrated plants

to manufacture zip fasteners, even if zip fasteners was reserved for the small scale

162 The court held, "A monopoly concern is meant to cater to the need of all sections of the people." 163 The court held that, "Recourse to E-Auction had been taken primarily by way of a profit motive. No public opinion was sought for and no expert committee was appointed. The statutory and Constitutional duties had not been kept in view. Conveniently, while making the said policy decision, the coal companies did not remind themselves that as they are instrumentalities of the State, they are bound to adhere to the Directive Principles of the State and the prime object for which the Nationalization Acts were enacted." See also Mahabir Auto Stores and Others v. Indian Oil Corporation and Others. (1990) 3 SCC 752

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sector as per the Industrial Development and Regulation Act, 1951. The court did not

go into the preamble of the Act to analyze whether de-reservation of the kind that is

envisaged by the government is legally permissible or not. Instead the court relied

upon the Industrial Policy Resolution and upheld the de-reservation of zip fasteners

manufactured in integrated plants. The court also did not analyze the discrimination

that is faced by the small scale industry by the said policy. These cases reflect the

inconsistency that prevails in deciding the legality of a policy.

In contrast to a tilted level playing field which is based upon an egalitarian grounds,

there is also another argument this doctrine which is based upon a libertarian

perspective of right to equality. In this approach equality of rights is the prime

consideration than the consequences that will ensue as result of that right. This

approach demands a neutral level playing field where every individual will have the

equality of right and opportunity to compete for a desired outcome. Even in this

approach, some differences amongst people have to be admitted, for instance 'age',

which is a valid ground for classification for the purposes of entering into a valid

contract under the Indian Contract Act, 1872.

From this perspective doctrine of 'level playing field' is aimed at attaining fairness

where everyone has a chance to succeed but they all play by the same set of rules. In

other words; a field is said to be level where no external interventions such as

governmental policy affect the ability of the player to compete fairly.

Thus in the context of the policy of economic reforms the court has advocated for the

application of level playing field from another perspective, which aims at attaining

equal access to market. The court observes "a . level playing field is the key factor for

invoking the new economy. Such a level playing field can be achieved when there are

a number of suppliers and when there are competitors in the market enabling the

consumer to exercise choices for the purpose of procurement of goods.,,)64

This test goes well with the facilitative role of the state, where state agencies are

assigned the role of a referee rather than a player with strong constitutional

obligations. The invocation of this doctrine also gels with a democratic system of

164 Mis Ashoka Smokeless Coal Ind. P. Ltd. & Ors v. Union of India Appeal (civil) 5302 of 2006

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governance, where lack of disparity along the spectrum is essential to establish. 165

This perspective is compatible not only with the right to equality but also with the

freedom of an individual to carryon trade and business of one's choice.

This approach has been followed in Caterpillar India Pvt. Ltd v. Western Coal Fields

Ltd. and Ors l66 where the doctrine of level playing field was invoked by the court, in

the sense of providing equal opportunity to participate in the competition. In this case

the policy of the government to provide purchase preference to public sector

enterprises in purchasing coal was contested.

This policy was brought into force in 1992, which replaced the price preference

policy. However the preference to the public sector enterprises were kept on

extending vide a number of notifications. The impugned notification was issued in

2005, which amended the word 'may' and instead used the word 'shall' therefore

obligating the coal fields to compulsorily provide purchase preference to public sector

enterprises.

It was contended by the petitioners that the use of the word 'may' was providing level

playing field to other customers of coal as well, where as by substituting that with

'shall' amounts to taking away the level playing field which was available to private

parties. Further it also leads to state monopoly on the matter.

The court upheld these contentions and observed that, the substitution of words does

not leave any option with the coal fields and creates monopoly. Moreover a case to

case analysis should be done to assess the requirement of each individual public

sector enterprise (PSE). In essence, it was held that the preference should be PSE

specific and the margin also has to be examined rationally. In order to attain this, the

court observed that industry-wise assessment should be done and if there is already

cost effectiveness in any PSEs there may not be any need for the preference being

given. The examination should be on the line as to whether any preference is called

for and what would be the margin of preference which would ensure level playing

165 Sheila Suess Kennedy, Tilting the Level Playing Field: Public Administration Meets Legal Theory, Journal of Law and Policy, 2003, page 495-523, See also Ashok Smokeless v. Union of India, Appeal (civil) 5302 of 2006 166 Transfer Case (civil) 4 of 2004

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field. It should also be fixed specifically and while fixing the minimum amount it

should be ensured that the decision as to quantity should be rational, so that there is

no likelihood of introducing any element of uncertainty. The court held that there

cannot be any rigid and inflexible policy. Since substitution of 'may' with 'shall'

amounts to essentially reversal of the policy that shall be struck down.

This approach to the doctrine of level playing field has also been relied upon in

Reliance Energy Ltd. v. Maharashtra State Development Corporation. 167 In this case

the court held that "level playing field" is a part of the article 14 and 19 (1) (g) of the

constitution. The court defines equality to mean non-discrimination. This

interpretation is similar to the first part of article 14, which is negative in nature.

Article 14, envisages that, "the state shall not deny to any person equality before law

or equal protection of law within the territory of India". While the second part puts a

positive obligation on the state to bring necessary social and economic changes so that

everyone may enjoy equal protection of the laws and no one is denied such protection,

the first part implies absence of discrimination, special privilege or favour to any

individual.

While the principle of classification and non-arbitrariness were based upon the second

part of article 14, the doctrine of level playing field is based upon the first part of

article 14. This first aspect of equality is one of the important ingredients of rule of

law. In order to give full meaning to this aspect of equality, the court gives novel

interpretation to right to life, which includes 'opportunity'. It is held that the doctrine

of level playing field can be invoked while interpreting article 19 (1) (g) as well.

These provisions ensures that a person exercising the right to freedom of trade and

occupation should be placed in a level playing field to be able to compete and enjoy

his rights under article 19 (1) (g).168 The freedom to carryon trade and occupation of

167 (2007) 8 SCC 1 168 The court observed, "In the world of globalization, competition is an important factor to be kept in mind. The doctrine of "level playing field" is an important doctrine which is embodied in Article 19(1 )(g) of the Constitution. This is because the said doctrine provides space within which equally­placed competitors are allowed to bid so as to subserve the larger public interest. "Globalization", in essence, is liberalization of trade. Today India has dismantled licence-raj. The economic reforms introduced after 1992 have brought in the concept of "globalization". Decisions or acts which results in unequal and discriminatory treatment, would violate the doctrine of "level playing field" embodied in Article 19(1)(g). Time has come, therefore, to say that Article 14 which refers to the principle of "equality" should not be read as a stand alone item but it should be read in conjunction with Article 21

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one's choice is restricted to the extent, the government engages itself in carrying on

any business as a monopoly, or the government imposes any reasonable restriction in

the interest of general public.

In view of these constitutional provisions, the court in Reliance Energy Ltd. has held

that, the doctrine of level playing field is subject to "public interest". Thus it can be

argued that the level playing field may not always remain neutral, and may be tilted in

favor of the government, when it justifies its action on the basis of public interest.

This approach of the court seems to be in consonance with the earlier interpretations

to article 14, 19 and 21. In the past even attainment of directive principles of state

policy and the goals of economic justice have been held to be a reasonable restriction

in the interest of general public. However the observation of court that once the level

playing field is ensured the action of the government shall not be further scrutinized

as to whether substantive equality is attained or not or it is giving partial expression to

the right to equality.

Thus, the doctrine o~ level playing field whether traced to article 14 or 19 c"n be tilted

in favour of attaining goals of social and economic justice that are enshrined in the

Constitution. However this doctrine has not always been subjected to 'public interest' .

Probably the court can rely upon relevant material to see whether in a given case level

playing field has been given or not. This has been echoed by the court in Cellular

Operators Association of India v. Union of India l69 where it was held that non

consideration of relevant materials on the issue regarding level playing field and

absence of any finding on that score vitiates the ultimate decision and raises a

substantial question of law, which can be looked into by the court in exercise of the

power of judicial review.

Thus we observe that in the wake of the new economic policy the Supreme Court has

been invoked for the doctrine of level playing field, as an expression of right to

which embodies several aspects of life. There is one more aspect which needs to be mentioned in the matter of implementation of the afore stated doctrine of "level playing field". According to Lord Goldsmith - commitment to "rule of law" is the heart of parliamentary democracy. One of the important elements of the "rule of law" is legal certainty. Article 14 applies to government policies and if the policy or act of the government, even in contractual matters, fails to satisfy the test of "reasonableness", then such an act or decision would be unconstitutional. 169 (2002) Indlaw SC 1576

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equality. While in one of the cases the roots of this doctrine has been traced to article

14170 in another case its roots have been'traced to article 19.171 Further while article 14

has both negative and positive connotations, article 19 enlists freedoms, which

amongst others include the freedom to carryon trade and profession of one's choice.

It is difficult to appreciate whether the judges have relied upon this doctrine with the

aim of attaining substantive justice or to ensure equal access to market. Nevertheless

the doctrine of level playing field in the Indian context does recognize the existing

societal differences. The Constitution aims at alleviating such differences by tilting

the level playing field. Notwithstanding the need to tilt the level playing field, the

court is also aware of the need to recognize equal access to market, which calls for

maintaining a neutral level playing field. There is a difficult task before the court to

balance these differing perspectives on level playing field and prioritizing anyone

aspect over the other. Thus inconsistencies have crept into it.

The court has expressed the difficulty that it has been facing while reconciling

between the two perspectives. The court states, "In a market governed by free

economy where competition is the buzzword, producers may fix their own price. It is,

however, difficult to give effect to the constitutional obligations of a State and the

principles leading to a free economy at the same time (emphasis added)"I72

Notwithstanding these difficulties, the reliance upon this doctrine to interpret article

14 has lead to fundamental changes in the right to equality jurisprudence in India.

The advantage of the use of this doctrine is creating a perceived fairness amongst the

players of the game even if it leads to impairment of efficiency and equity.173

D. Violation of Article 19 (1) (g)

Article 19 (1) (g) of the constitution guarantees the right to practice any profession or

to carryon any occupation or trade or business. However this is not an absolute right.

This right is subject to reasonable restriction imposed in the interest of the general

pUblic. This is also subject to the provisions on professional or technical qualifications

170 MIs Ashoka Smokeless Coal Ind. P. Ltd. & Ors v. Union of India, Appeal (civil) 5302 of 2006 171 2006 Indlaw SC 913 172 Ashok Smokeles, v. Union ofIndia, Appeal (civil) 5302 of 2006 173 Summers, Lawrence H. 1987. "Should Tax Reform Level the Playing Field?" National Bureau of Economic Research, NBER Working Papers 2132.

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necessary for carrying on any profession, trade or business. Limitations can also be

imposed to enable the state to carry on any trade, business, industry or service to the

complete or partial exclusion of citizens.

The term reasonable restriction has been interpreted in the past to include complete

prohibition. Presently it is being read along with article 14 to invoke the doctrine of

level playing field.

Reasonableness of restriction has been questioned in many cases dealing with new

economic policy. In Bhavesh Parish v. Union of India174 the petitioners contended

that, a notification issued by the Reserve Bank of India violates their fundamental

right to equality and the right to carryon trade and business as it prohibits private

persons from receiving deposits, except from their relatives. The petitioners were of

the view that, since they are shroffs and are traditionally involved in the business of

money lending, and operate through open current accounts, whereby they receive

deposits and also lend money therefore the said notification violates their fundamental

rights. The court held that, the notification of the reserve bank was issued as a

measure to regulate money laundering and discourage private unincorporated firms

from receiving deposits and duping innocent people. This notification was construed

to be a reasonable restriction as per article 19 (6).

This case is in consonance with the earlier judgments of the court such as Saghir

Ahmai75 and Md. Hanif Qureshi l76, where the court had recognized that citizens'

right to carryon trade and business is subject to reasonable restriction. The first

justification holds that, rights of individual citizens can be curtailed to provide scope

for the state to carryon business in the interest of general public. According to the

second justification there are certain activities which cannot be said to be trade,

business occupation etc. to get protection under this article. There are two kinds of

reasons that have been advanced by the court in justifying the restrictions; first if the

restriction is giving more right to the government to carryon economic activity, and

the second reason for justifying restrictions to the individual freedom is, if the nature

174 AIR 2000 SC 2047 175 AIR 1954 SC 728 176 AIR 1958 SC 731

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of business is such that, no absolute right can be granted. Nationalization of industries

can be justified in the first ground mentioned above, and non-protection of trade in

liquor is an example of the second category of justifications.

The facts of the Bhavesh Parish suggest that this case can be justified under the first

category of cases, where decision of the state to regulate economy has been given

precedence over the right of the individual to carry on trade and occupation of one's

choice. 177. In Papnasam Labour Union v. Madura Coats limited,178 the court laid

down detail guidelines for interpreting reasonableness of restriction. These include the

following:

a) The restriction sought be imposed on the fundamental rights guaranteed by Article 19

of the Constitution must not be arbitrary or of an excessive nature so as to go beyond

the requirement of felt need of the society and object sought to be achieved.

b) There must be a direct and proximate nexus or a reasonable connection between the

restriction imposed and the object sought to be achieved.

c) No abstract or fixed principle can be laid down which may have universal application in

all cases. Such consideration on the question of quality of reasonableness, therefore, is

expected to vary from case to case.

d) In interpreting constitutional provisions, courts should be alive to the felt need of the

society and complex issues facing the people which the Legislature intends to solve

through effective legislation.

e) In appreciating such problems and felt need of the society the judicial approach must

necessarily be dynamic, pragmatic and elastic.

f) It is imperative that for consideration of reasonableness of restriction imposed by a

statute, the Court should examine whether the social control as envisaged in Article 19

is being effectuated by the restriction imposed on the fundamental rights.

g) Although Article 19 guarantees all the seven freedoms to the citizen, such guarantee

does not confer any absolute or unconditional right but is subject to reasonable

restriction, which the legislature may impose in public interest. It is therefore necessary

to examine whether such restriction is meant to protect social welfare satisfying the

need of prevailing social values.

177 (1995) 1 see 501 178 AIR 1995 se 2200

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. h) The reasonableness has got to be tested both from the procedural and substantive

aspects. It should not be bound by processual perniciousness or jurisprudence of

remedies.

i) Restriction imposed on the fundamental rights guaranteed under Article 19 of the

Constitution must not be arbitrary, unbridled, un-canalized and excessive and also not

unreasonably discriminatory. Ex hypothesis, therefore, a restriction to be reasonable

must also be consistent with article 14 of the Constitution.

j) In judging the reasonableness of the restriction imposed by clause (6) of Article 19, the

Court has to bear in mind directive principles of state policy.

k) Ordinarily, any restriction so imposed, which has the effect of promoting or

effectuating a directive principle, can be presumed to be a reasonable restriction in.

public interest.

In view of these guidelines, the decision of the court in Bhavesh Parish seems to have

taken relevant consideration into account in declaring the notification valid. However

there is a marked difference in approach so far as deciding this case is concerned. In

this case the court relied upon the fact that, the impugned notification was based upon

the recommendation of the Banking Reforms Committee, therefore, it can be held to

be reasonable. Thus opinion of expert was considered equal to reasonabless of

restriction. However Justice Krishna Iyer in Fateh Chand v. State of Maha rashtra I 79

had relied upon the socialistic vision of the Constitution to upheld the move by the

central government to abolish the system of money lending at the informal level by

village money lenders and held that, such money lending which leads to exploitation

of the poor is bad under the Constitution and cannot be said to be protected under

article 19 (1) (g). Thus, the changed emphasis on the constitutional ideals is apparent

from the decision in this case.

In Bharat Hydro Power Corporation180 case also the petitioner had contended that

their fundamental rights under article 19 (1) (g) stands violated due to the legislative

action of the governor, whereby he had issued an ordinance to reverse the process of

privatization. The petitioners had formed a joint venture along with the government to

build a hydropower project in the state of Assam. However before that could be

179 (1977) 2 see 670 180 2004 Indlaw se 40

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completely carried out, the state government issued a law reversing the process of

private participation. In view thereof the petitioners had approached the court for

protection of their fundamental rights. However the court did not discuss on this issue,

because, the court presumed the competency of the state legislature to enact the law

and also upheld the validity of the law.

The court held that the law was enacted to give effect to public interest and therefore

is valid. Thus the action of legislature and executive gets double advantage, first by

presumption of public interest characteristic of those actions second the presumption

of validity of such action. The burden of these presumptions is such that the court has

not preceded further to test the reasonableness of such restriction.

Similarly in Zippers Karamchari, it was argued that if the permission granted to YKK

Corporation to set up an integrated zip fasteners plant is upheld, that will render more

than 45,000 workers jobless. However, even in this case, the court did not discuss the

reasonableness of restriction on the rights of the workers, even if in Bennet Coleman

and Co. the court had emphasized upon the direct effect test to determine violation of

fundamental rights. In both the above mentioned cases the court did not pay heed to

the right under article 19 (1) (g) because, they did not intend to intervene in policy

matters, which are amenable to limited review and the court presumed that these

policies and the subsequent actions flowing from that are necessary to give effect to

public interest. 181

However in Reliance Energy Ltd. v. MSRDC, the court did pay heed to the rights of

the individual bidders. In this case the bidders were contending that if they are

unreasonably prevented from participating in the bidding process, their fundamental

rights under article 19 (1) (g) shall stand vitiated. The court invoked the doctrine of

level playing field to hold that article 19 (1) (g) comprises within itself the right to

opportunity and therefore if they are not allowed to bid, then they shall be denied of a

level playing field. As a result both article 14 and article 19 (1) (g) shall stand

violated.

181 See also Ojas Industries v. Oudh Sugar Mills, Appeal (civil) 1730 of 2007, where violation of article 19 (I) (g) was not discussed

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Economic Policies and Constitutional Adjudication since 1991

It is apparent from the above discussion of cases on violation of article 19 (1) (g) that,

in majority of cases the court has justified the violation of this right, on the ground

that the action of the state are reasonable restrictions in the interest of general public.

This provision has not attracted much attention from the court. In all these cases

except one, the court has justified the curtailment of the right, on the ground that, the

restriction has been imposed to give effect to policy decisions and since policy

decisions cannot be intervened by the court, there is no violation of rights These cases

also suggest that the court has presumed the validity of the action of state, instead of

analyzing them on the touchstone reasonableness of restriction. The difficulty lies in

the fact that on the one hand there is denial of violation of fundamental rights, on the

other the lack of acknowledgement of the applicability of various tests that were laid

down in the past to test the validity of state action.

E. Violation of Right to Life and Livelihood

Violation of right to life has not been specifically argued in many cases, however it

has been the backbone of many other arguments on violation of fundamental rights.

For example in matters dealing with the violation of article 14 reliance has also been

placed upon the violation of article 21. This has been due to the decision of the court

in Maneka Gandhi, which had held that article 14, 19 and 21 are closely linked and

one cannot be violated without violating the other. This decision had also interpreted

the right to life to include all that makes a dignified life possible. This has broadened

the meaning of life and now includes, right to clean environment, right to information,

right to shelter, right to water etc. In cases on implementation of economic policies,

violation of right to life and livelihood in this broad sense of the term has been

alleged. In this section we shall take up such cases where any aspect of right to life

has been affected, especially that of the disadvantaged section of the society and

examine the response of the Supreme Court.

Constitutional propriety of any policy decision or the method of implementing a

policy has raised numerous concerns regarding the fundamental rights of people and

. the obligation of the state to ensure the attainment of those rights. There are also

concerns regarding the adherence to directive principle of state policy which are

considered to be complementary to the fundamental rights. A number of policy

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measures have directly or indirectly affected people and their rights, which includes

rights of the workers and right to life and livelihood of tribal people who have been

adversely affected by the process of industrial development.

These people have lost their jobs (be it disinvestment, or retrenchment), their lands

(be it for setting up of special economic zones or for compulsory acquisition of land

by government for 'public purpose') and their livelihood (be it the establishment of

dams or attracting foreign direct investment for mining) due to implementation of

industrial policies in the post economic reforms era. In the following few paragraphs

we shall discuss about the impact of economic reforms on the lives of these

marginalized sections of the society. Cases are indicative of the trend.

Rights of the tribal people have been adversely affected by a number of policy

measures. In this section we shall discuss how the right to ownership of land has been

affected by the disinvestment policy and the mining policy of the government.

i. Policy of Disinvestment, Land Alienation and People's Right

One of the most important case concerning the rights of the tribal and indigenous

people is the Ba1co disinvestment case. In that case not only did the Supreme Court

uphold the decision of the government to disinvest but also letigitimized the transfer

of land from tribal people to the multinational company who acquired stake in Ba1co.

In this case it was contended before the court that land on which Ba1co was set up

originally belonged to the tribal people. That land was transferred to government for

public purpose, which in the present case was setting up the industry. It was

contended that since after divestment the government share will reduce and the

industry shall be handed over to a private corporation, it could no more be said to

serving any public purpose.

Such transfer of land was also alleged to be not permissible due to several reasons.

First and foremost is the schedule V to the Constitution, which prohibits transfer of

tribal land to non-tribal people. Schedule V of the Constitution states that land

belonging to tribal people cannot be transferred to non-tribal hand. It can be

transferred only by tribal people or a cooperative society of tribal people or by a

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Economic Policies and Constitutional Adjudication since 1991

government undertaking, but never by a by private person. In view of this provision of

the Constitution, the land belonging to tribal cannot be transferred to Sterlite

Industries. However the Supreme Court held otherwise.

Another reason why the tribal land in that region could not have been transferred to a

non-tribal person is that the Supreme Court, in Samatha v. State of Andhra Pradesh182

has categorically held that tribal land can in no circumstance be transferred to non­

tribal people. In this case a three judge bench declared that government is also a

"person" and that all lands leased to private mining companies in the scheduled areas

are null and void. However in Balco case the Supreme Court held that the decision in

Samatha is not applicable on the facts of the case. Rather attempts were made to

amend the Vth Schedule of the Constitution to take away the effect of the Samtha

judgment ..

It was also contended by the petitioners that in view of the Land Acquisition Act,

which lays down procedures to be followed for the compulsory acquisition of land,

the transfer of land to Sterliteis invalid. Under the said Act land can be acquired for

public purpose. Further the Act states that if the public purpose for which the land

was acquired ceases to exist then the land must be given back to the person or the

authority from which it was taken. Therefore in this case the land should have been

returned to tribal people. Besides that the Madhya Pradesh Land Revenue Code 1959

states that when tribal land is alienated, it must be restored back to them.

After a detailed observation of these contentions the Supreme Court came to the

conclusion that the transfer of land to Sterlite Industries is valid. Court held that, the

land in question was transferred to Balco about 25 years ago. Therefore any litigation

regarding that cannot be entertained after so many years have elapsed. The court was

also of the view that even after disinvestment the nature of the company has not

changed; therefore the transfer of land cannot be challenged. The allegations made by

the petitioners could have been entertained if the government would have completely

sold off its share resulting in change in the character of the company.

182 MANU/SC1132511997

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The above mentioned observations are inconsistent to each other. While on the one

hand the court observes that due to the lapse of twenty five long years the transfer of

land by tribal people cannot be agitated in this case, on the other the court observes

that only if the government completely offloads all its stake, which would have

changed the character of the company then this matter could have been agitated. The

inconsistency lies in the fact that while as per the first argument the issue is barred by

latches on the other the court observes that the issue is not ripe enough to be discussed

in the present case.

The above said justification of government can be taken up alternatively and not

simultaneously. If the tribal people are said to be agitating the transfer of land then the

doctrine of latches could be applied subject to provisions of the statutes to the

contrary; in which case the court could decide to entertain the plea in the present case.

However, if the trial people are agitating the "public purpose" aspect of the problem

(wherein they had given up their land on the good faith that the state shall carryon the

business and industry on behalf of the society) the answer could be in the negative. In

other words the presumption of public purpose which seems to have existed while

handing over their land to the government, is apparently lacking after the policy of

disinvestment is effectuated to and the land is being transferred to a private

multinational firm, because the sole aim of running the industry will not only be

serving 'public purpose'. Thus the court should have justified the present allegations

on these legal grounds rather than holding that the issue per se cannot be agitated.

The approach of the court in Balco is in contrary to the decision of the court in many

previous cases on the right to land of the tribal people. For instance in R. Chandevarappa· v. State of Karnataka l83 the dispute pertained to a piece of land,

which was given by government as a measure to uplift the economic conditions of the

schedule caste and schedule tribes. Under the relevant legislation, the beneficiaries

were not supposed to part with the land, excepting under certain specified

circumstances. Since the petitioner had sold off the land in violation of the Act the

court held that in view of Articles 38, 39(b) and (c) and article 46, which obliges the

state to ensure that there is no concentration of economic power and the material

183 1995 see (6) 309

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Economic Policies and Constitutional Adjudication since 1991

resources of the economy are so distributed that it serves the common good, the

distribution of land to tribal people is justified.

The court observed that since Scheduled Castes and Scheduled Tribes are the weaker

sections of the society and have been deprived of their economic status by abhorrent

practices of untouchability and the tribes live in the forest, which is far away from the

civilized social life; The court felt there is an urgent need to augment their economic

status and to bring them at par with the mainstream. Moreover many members of

these deprived classes depend on agriculture or other related activities, including

being agricultural laborers. The State should in order to empower them deprived by

class assigns lands to them. Further the state should see that they remain in possession

of land and that they enjoy the property from generation to generation. Thus any

transfer or alienation of the land from a tribal to a non-tribal would amount to

violation of the Constitution and shall be against the spirit of economic justice.

Similarly, in Murlidhar Dayandeo Kesekar v. Vishwanath Pandu Barde l84, the

question was whether permission for alienation can be given under the Bombay

Revenue Code, regarding land which belongs to the Scheduled Tribes and what

factors should be taken into consideration by the competent authority to grant or

refuse to grant such permission. In this case the authorities had refused to grant

permission for alienation by the scheduled tribes to the non-tribal.

In this case the court based its decision on right to development, which is an

inalienable human right by virtue of which every person is entitled to participate and

contribution to, the enjoyment of economic, social, cultural and political development

and whereby all human rights and fundamental freedoms can be fully realized. In the

opinion of the court welfare is a form of liberty inasmuch as it liberates men from

social conditions which narrow their choices and brighten their self development.

Since democracy can blossom only when people have the full freedom to achieve

excellence. Hence the right to land cannot be taken away.

In this case the court traced the allotment of land to tribal people to Article 46 of the

Constitution, which mandates the State to promote with special care the educational

184 IT (1995) 3 SC 563

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and economic interests of the weaker sections of the people, and, in particular, of the

Scheduled Castes and Scheduled Tribes. The court observed that these measures are

necessary because the existing political democracy must be made a social democracy,

which recognizes and affords to realize liberty, equality and fraternity as the

p~inciples of life. In such scenario economic empowerment, is the foundation to make

equality of status, dignity of person and equal opportunity a truism. The court

envisaged an instrumental role of law in effectuating the fundamental rights in a way

which is not only complementary to the directive principles of state policy but also

brings in social revolution.

From the above observation it is evident that in the past the Supreme Court has laid

emphasis upon the land rights of the scheduled castes and the scheduled tribes, in

order to realize the directive principles of state policy as well as to ensure enjoyment

of fundamental rights. The court observes a seamless interaction between these two

components of the Constitution. Amongst all the rights land rights are important as it

is a powerful right. The enjoyment of many other rights and liberties could be traced

to the property rights. Therefore the court observes that 'to denigrate the institution of

property is to shut one's eyes to the stark reality evidenced by the innate instinct and

the steady object of pursuit of the vast majority of people.' Thus economic

empowerment is a basic human right, a fundamental right and is a part of right to life

and right to equality. In view of the immense importance of this right to the life of a

human being prohibition from alienation of land is only to effectuate the

constitutional policy of economic empowerment as envisaged under Articles 14, 21,

38,39 and 46 read with the preamble to the Constitution.

A combined reading of both the judgments reflects that not only allotment of land to

tribal people is essential but also the necessity of prohibition to alienate the land so

allotted for the continued protection of a number of fundamental rights of tribal

people. In view of the above consideration the Supreme Court in M.D. Kesekar case

declared the alienation of tribal land to be void under section 23 of the Contract Act as

it is considered opposed to public policy.

While in the above cited cases, the court traced the importance of the land to

Constitutional goals and aspirations and the importance thereof for the social and

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Economic Policies and Constitutional Adjudication since 1991

economic upliftment of the tribal and untouchables, in Baleo case, the court has not

attached any significance to the argument of alienation of tribal land to non-tribal and

from government to Private Corporations. Thus, in Balco case, the constitutional

aspect of the land transfer issue has not been dwelt upon by the judges. Besides the

alienation of tribal lands, the alienation of forest land has also caused concern so far

as, the new mining policies and the policy on foreign direct investment in the mining

sector is concerned. The new policy has allowed private mining corporations to mine

in India. Its implication upon the environmental concerns and the interpretation of

directive principles of state policy to conserve forest needs further analysis.

ii. Mining Poliey and People's Right

Rights to life and livelihood of tribal people may get adversely affected by the mining

activities. The mineral and mines policy stands transformed to a significant extent due

to the new economic policy. In 1993 a comprehensive National Mineral Policy

(NMP) was announced. For the first time this policy provided that private investment

should be encouraged in exploration and mining. 13 minerals hitherto reserved

exclusively for the public sector was opened for private players. Foreign technology

and foreign participation in exploration and mining was encouraged and foreign

equity investment in joint ventures in mining was promoted. Government declared its

intention of relaxing equity norms beyond 50 percent for foreign players on a case to

case basis. Consequently, amendments were carried out in the Mines and . Minerals

(Regulation and Development) Act in January 1994 and soon after changes were

made in the rules and regulations on mines and minerals. These amendments sought

to simplify the procedure for grant of mineral concessions so as to attract large

investment through private sector participation, including foreign direct investment.

Central government was the main player in carrying out these changes, as it has an

important role to play in the constitutional scheme of things, wherein the legislative

powers of the Central government and the state governments are clearly defined.

Entry 54 of List I in the Seventh Schedule of the Constitution empowers the Central

government to regulate mining activities and the development of minerals. Entry 23

of List II in the Seventh Schedule empowers the state governments to frame rules and

regulations in respect of mining activities and mineral development, subject to the

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provisions of List 1. In pursuance to these constitutional powers the mines and

minerals policy was framed.

Initially the mines and minerals policy was inspired by the Industrial Policy

Resolution of 1956 and provided for greater role to state. Some of the major minerals

such as coal, lignite, mineral oils, iron ore, copper, zinc, atomic minerals, etc. were

put in Schedule A, which was reserved exclusively for the public sector. Minor

minerals were placed in Schedule B, in which the private sector was allowed to

participate in mining activities along with the public sector. In pursuance of the said

industrial policy resolution, the Parliament enacted the Mines and Minerals

(Regulation and Development) Act, 1957. This Act was applicable to all minerals

except mineral oils.

Further changes were made in the Minerals and Mines Development and Regulation

Act 1957 vide amendments in 1999 and mines and minerals rules and regulations

were amended in January 2000. The dichotomy of state intervention in this sector was

evident from the fact that the Act was amended four times since its enactment in

1957, i.e. in 1972, 1986, 1994, and 1999 followed by corresponding changes in the

rules, while the first two amendments increased governmental control, the last two

relaxed them and opened up more space for private participation. Along with that,

through these amendments the central government also relaxed its clutches over the

state governments. In pursuance thereof the number of the Part C minerals in the

Schedule I were consistently reduced. These minerals which were 38 in number in

1988 have reduced to only 10 in 2005.

In addition to the changes in the mines and minerals policy, which by now

encouraged private participation including participation of foreign players there were

significant changes in the regulations on foreign direct investment that were directed

at facilitating these changes. Accordingly there was gradual relaxation in the

permissible limit on foreign direct investment since 1993. By 2006 100% foreign

direct investment was permitted in mining sector.

Mining is closely connected with forest and environmental issues. And since mines

are found in forest lands, mining companies affecting forest and environment are

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Economic Policies and Constitutional Adjudication since 1991

required to comply with the Forest Act, 1980and the Environment Protection Act,

1976. While the central government has the power to give permission for mining

activities, clearance under the Forest Act, 1980 is to be taken from the Supreme

Court, even if the concerned authority under the Forest Act has already granted

permission. The broader question is the judicial assessment of what constitutes non

forest use of forest land.

The intervention of the court iiI matters relating to forest and wild life has been

claimed vide the decision of the court in T. N. Godavarman Thirumulkpad v. Union of

India l85 and the Centre for Environmental Law (CEL), WWF v. Union of India l86•

While the first case pertains to implementation of the Forest Conservation Act, 1980,

the second case relates to settlement of rights in National Parks and Sanctuaries and

other issues under the Wildlife (Protection) Act, 1972. In both these cases continuous

mandamus is in operation and the court is regulating the functioning of the executive

and the implementation thereof. Orders are passed by the court from time to time. The

Supreme Court has been able to gain enormous powers vide these two cases. The

court has turned to be a policy maker on the matter pertaining to forest as well as

wildlife and national sanctuary matters.

A combined reading of these judgments along with the Mines Act gives us a picture

where the central government might have power engraved in the statutes but the

Supreme Court retains the ultimate authority to decide whether mining can be carried

on or not and may also deny so on the ground that the activity proposed is non-forest

use of the forest land and degradation of environment shall take place. Thus, the court

can stall the mining projects at its very inception. It is up to the Supreme Court to

decide as to what is non-forest activity.

There have been divergent trends concerning the meaning and application of the term

"non forest use of land". There have been instances, where drying fish in forest has

been held to be non forest use of land 187 where as in a recent order passed in the

matter of Vedanta Resources, a London based company was permitted to mine

185 WP No 202 of 1995 186 WP No 337 of 1995 187 Sunita Narain, Our quality of Mercy, Business Standard, New Delhi August 29, 2008

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bauxite from the ecologically fragile Niyamgiri hills. The company had proposed to

set up an aluminum project worth Rs 4,000-crore at Lanjigarh in Kalahandi district.

The decision thus allows diversion of 660.749 hectare of forest land for mining

purposes to feed its alumina plant. In this case the court perceives a sustainable co­

existence of mining and the forest as the mining company has agreed to pay Rs. 55

crores towards the sustainable development fund.

This decision stands contrary to the decision of the court in Samatha v. State of

Andhra Pradesh188• In the case of Samatha, the Supreme Court had specifically held

that as per the 73rd Amendment Act, 1992, every Gram Sabha is competent to prevent

alienation of land in the Scheduled Areas and it can take appropriate action to restore

any unlawful alienation of land of a scheduled tribe.

On the issue of mining, the court declared that minerals can only be exploited by

tribal themselves either individually or through cooperative societies with financial

assistance of the state. The court also laid down guidelines on the duties and

obligations of the lessee to be applicable in all such cases where total prohibition on

mining by non-tribal is not in place. In all such cases at least 20% of net profits shall

be kept as permanent fund for development needs apart from the obligation of the

lessee to carry out reforestation and maintenance of ecology. Transfer of land in

Scheduled Area by way of lease to non-tribal, corporation aggregate, etc stands

prohibited and any renewal of lease shall be considered as fresh grant of lease and

therefore, any transfer in guise of lease shall stand prohibited. Further in the absence

of total prohibition in some of the states, the Scheduled Areas, Committee of

Secretaries and State Cabinet Sub Committees shall be constituted and necessary

decision shall be taken thereafter. In order to bring in consistency in the whole

country so far as tribal lands are concerned, the court called upon the Prime minister,

state chief ministers and other government functionaries to take necessary policy

decision. In this decision there is a clear declaration as to prohibition on mining or

limited mining only after due compliance with the guidelines set by the court.

188 MANU/SCIl325/1997

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In addition to the Samatha decision, in the Dehradun Quarrying case as well the

Supreme Court had stopped all mining activities in order to protect the forest. 189 The

court had observed that in view of the ecological consideration mining in the area

should cease. Intrigued by the need to balance development and environment the

court held that, while mining in the area has to be stopped as far as practicable, it has

to be permitted to the extent necessary in the interest of the defense of the country and

safeguarding the foreign exchange position. The court clarified its position by holding

that, the union government should provide detail information regarding the need for a

particular mineral and the sources from it can be procured, only when the government

is fully convinced that there is no alternative to quarrying at a particular sight it

should give permission for the same. In the absence of convincing explanation by the

government as to the need for limestone and the sources of procurement etc. the

Supreme Court had ordered complete closure of all mines in the Dehradun valley. In

addition to this balancing approach, in Sachidanand Pandey v. State of West BengaZ190

case the court cautioned against getting trapped in a neatly crafted argument by the

government on balancing the developmental and environmental needs.

While elaborating on the pattern the court held in the case of Sachidananda Pandey,

the court held, "whenever a problem of ecology is brought before the court the court

is bound to bear in mind article 48A of the Constitution... and article 51 (1) (g)

.. when the court is called upon to give effect to directive principles and fundamental

duty the court is not to shrug its shoulders and say that priorities are a matter of policy

and so it is a matter for policy making authority. The least that the court may do is to

examine whether appropriate considerations are borne in mind and irrelevancies

excluded. In appropriate cases the court may go further but how much further will

depend on the circumstances of the case. The court may always give directions.

However the court will not attempt to nicely balance relevant considerations. When

the question involves the naive balancing of relevant considerations the court may feel

justified in resigning itself to acceptance of the decision of the concerned authority."

Thus, it is apparent from the above cited decisions that there has been change in

approach while deciding cases on rights of forest dwellers, forest and mining, which

189 Rural Litigation and Entitlement Kendra v. State of Uttar Pradesh, AIR 1985 SC 652 190 AIR 1987 SC 1109

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requires fine balancing of varying and often conflicting claims. However decisions in

this regard should not only be based upon the subjective discretion of the government

or the committee appointed by the court rather should be based upon objective

standards, because it directly affects people's fundamental right to life which includes

all that is necessary to make a dignified life possible. Further the lack of consistency

in interpreting "non forest use" of forest land has led to uncertainties and bizarre

solutions.

From the above discussion it is evident that the mining policy as well as the

disinvestment policy has adversely affected the rights of tribal people, the forest

dwellers and have violated the right to clean environment as well. The above

discussion is also evident of the enormous power that the Supreme Court has acquired

with regard to forest and mining matters. This has also resulted in converting courts as

the real final authority on matters relating to wild life and forest. By virtual takeover

of these functions, the court has been able to playa direct role in the implementation

of economic policy. In such circumstances, the main role of the court as a counter

majoritarian check on the excesses committed by the other two branches of the

government has been relegated to the background.

In this section we discussed a number of constitutional issues that have arisen with

regard to the process of economic reforms. There is a common thread that runs

through all the cases that have been discussed here. The court has not intervened in

the decision of the government providing for the implementation of any policy

measure. The court has upheld such decisions, irrespective of their impact upon the

fundamental rights of people. Most of these cases pertained to executive decisions.

However, so far as constitutional amendments are concerned, which requires

parliamentary approval, none has been carried out. We have shown that, the argument

of lack of numerical majority is not a valid argument for lack of amendments to the

constitution. Rather, it could be attributed to the absence of consensus on the issue of

economic reform, or the 'stealthy' approach to the implementation of economic policy

through executive actions or the gradual but definite changes being brought to the

constitution through judicial interpretation. Legislative initiatives have also been

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Economic Policies and Constitutional Adjudication since 1991

taken to implement policies. Most often the competence of the legislature to enact law

has been contested by parties, who have been adversely affected by such enactments.

4.5.2 Legislative Competence and Adjudication of Policy

Competence to enact a law remains one of the contentious issues in constitutional

adjudication. The Constitution provides legislative competency of the parliament and

the state legislatures.191 Though there are areas on which both parliament and state

legislatures can make law, the law passed by the parliament is given precedence over

the state enactments, unless such state law has received assent of the President.192 The

items in the seventh schedule rpovides in detail the areas of legislation for the central

and the state legislature accordingly they are to enact law, however incidental

encroachment upon another's jurisdiction is permissible. Besides assigning the

legislature the core function of undertaking legislative power, the executive is

assigned certain legislative activities under the Constitution of India. Accordingly the

Governor of a state, who is the executive head of a state can also issue ordinance

when the legislature is not in session. The government uses both legislative as well as

executive measures to give effect to policy decisions. The legislative power of the

governor is co-extensive with the legislative power of the state legislature. In two

cases pertaining to the implementation of the policy of disinvestment, the competence

of the governor to issue ordinance was in question.

In Dalmia Industries Ltd. v. State of Uttar Pradesh l93 and in Bharat Hydro Power

Corporation v. State of Assam 194 issues were raised regarding, the competence of the

governor to issue ordinance was raised.

The first case arose in the background of the initiative of the state government to

privatize three sick cement factories. Decision was taken in this regard in April 1990.

Accordingly the public sector undertaking which was managing those factories was

converted into a joint sector corporation. Dalmia Industries joined as the partner in

191 See Seventh Schedule to the Constitution along with Article 245 and 246. 192 Article 254 of the Constitution of India 193 1994 Indlaw SC 372. In This case the validity of the Uttar Pradesh State Cement Corporation Limited (Acquisition of Shares) Ordinance, 1991 was in question. 194 2004 Indlaw SC 40. In this case the Constitutional validity of the Bharat Hydro Power Corporation Limited (Acquisition and Transfer of Undertaking) Act. 1996 was in question.

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this joint venture. However while the memorandums were signed and the fmancial

resource were gathered the governor promulgated the Ordinance. The Ordinance

clearly stated that its purpose was to acquire the shares of the Corporation. This was

justified on the ground of public interest. The government stated that this move was

necessitated because, the employees of the corporation originally managing the sick

cement factories had filed a writ petition in the High Court, challenging this

privatization. As a result the Court had issued an interim order to stay the further

transfer of shares by the government. Since the commitment was to transfer 51

percent of its share and only 49 percent of shares were transferred when the stay order

was issued by the High Court, the government thought it expedient to take back its

shares in the corporation.

In view of the facts of the case and the after tracing the legislative competence of the

legislature to enact such a law the court came to the conclusion that the impugned

legislation was not enacted for taking over management or control of any industrial

undertaking by the State Government. In pith and substance that was enacted to

acquire the scheduled undertakings.

The court also held that the Act (originally an ordinance) was in public interest, it

observed that after the transfer of 49 percent shares of the Corporation, production

deteriorated and the overall market position in respect of the availability of cement

became worse. The cement factories also could not function due to the stiff resistance

of the labour force against the move to privatize the corporation, which took the shape

of a law and order issue. Thus while on the one hand it was difficult to run the factory

on the other the financial condition of the corporation deteriorated. Since the

ordinance was issued to meet these externalities it was held to be issued in public

interest. Thus the court upheld the validity of the legislation in question.

This decision can be distinguished from the Balco disinvestment case, where the court

did not accept the right to be heard by the employees of the dis invested undertaking as

it was of the view that consideration of labour rights cannot vitiate a policy of the

government. Contrast to that in this case, unruly behavior and agitation by the

employees was a justified ground on which the state government can pass a law to

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Economic Policies and Constitutional Adjudication since 1991

reverse the policy of privatization. Thus court gives premium to aggressive behavior

of the employe~s over a request to be heard in the matter.

The facts of the second case are similar and can be traced to the policy of the Central

Government in the year 1992-93 on privatization in the power sector. In accordance

with this policy .the state government decided to transfer construction of a Hydro

Electric Power Station to joint sector. A separate company was created where the

state, the private party and the general public held shares. Memorandum of

understandings was signed and money was transferred to a separate account.

Deadlines were fixed, however that could not be met and dispute arose between the

government and the private partner. While the legal proceedings were still on, the

state government promulgated the Bharat Hydro Power Corporation Limited

(Acquisition and Transfer of Undertaking) Ordinance, 1996 acquiring the undertaking

of the said project, which was subsequently replaced by Bharat Hydro Power

Corporation Limited (Acquisition and Transfer of Undertaking) Act, 1996.

Thereafter this law was challenged on the ground of being violative of Articles 14 and

19(1) (g) of the Constitution of India. It was alleged that the law was vague, unfair

and arbitrary. It was also argued that the state government does not have the

legislative competence to enact such a law. On the other hand, the state government

contended that it has the legislative competence to enact the law and Act was not

arbitrary as it was passed to avert serious power crisis in the state. 195

The court observed where the state and central law has been enacted under the same

item the question arises whether the state Act is repugnant to the central Act, in which

case, if the stats Act has not received the assent of the president, then the central Act

shall override the state Act. The test to determine repugnancy is to see:

a) Whether there is direct conflict between the two provisions;

b) Whether Parliament intended to lay down an exhaustive code in respect of the subject

matter replacing the Act of the State Legislature; and

195 The preamble of the Act stated, "Whereas it is expedient in the public interest that the undertaking of the Bharat Hydro Power Corporation Limited should be acquired for the purpose of the enabling the State Government to efficiently supervise manage and execute the work expeditiously as to subserve the common good, in the context of the acute power shortage in the State"

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c) Whether the law made by Parliament and the law made by the State Legislature

occupy the same field.

After analyzing the details of the concerned law, the court came to the concl~sion that

the state law is not repugnant to the central law, therefore the Act is a valid law.

While the court focused on the competence of the legislature to pass the law, and

upheld the validity of the law on that ground, however whether the law so made

violates the rights of the private party involved in the joint venture with the

government is not being discussed by the government.

In both the cases the ordinances which were later converted to be Acts were upheld by

court, by applying standard principles of constitutional adjudication such as the test of

pith and substance and the principles of repugnancy. It is established that subject to

the provisions of the Constitution, the executive power of the union and the states

extends to all matters in respect of which parliament or state legislatures have power

to make law. 196 Since it is an exercise of legislative power, it can only be challenged

on the ground of malafide. 197 In both the cases the court presumed the validity of the

legislations as it were deemed to have been enacted in the interest of the public, so

there was bonafide exercise of power. Thus although the presumption can be rebutted

that is a difficult proposition.

Both the cases raise important questions as to the risks of contracting with the state. It

is apparent from these cases the sovereign and inherent power of the state to enact

laws has direct impact upon the contractual obligations in joint venture projects.

Though the government may not be allowed to do so in certain cases where estoppels

can be applied or where the government action has given rise to legitimate

expectation of the other contracting party, the government may not be allowed to

disown its liability. However in the present cases no such grounds were discussed.

Both the cases were decided upon the facts of the case. Instead of relying upon their

legislative power to repudiate the contract, other options could have been explored.

Both the government could have resorted to simple repudiation of contract and in case

of any dispute they could have referred the matter for arbitration as per the

196 See Articles 73 and 162 of the Constitution. 197 K. Nagraj v. State of Andhra Pradesh (1985) 1 SCC 523

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Economic Policies and Constitutional Adjudication since 1991

memorandum of understanding signed by the parties. However, the governments have

resorted to legislative power which is its exclusive privilege. This has put the parties

at greater risk when they enter into contract with the government. The courts have

supported the government in view of the larger public interest the law would serve.

Thus these two cases along along with the Indian Thermal v. Union of Indial98 case

bring forth the fact that the terms of contract is subject to change at the discretion of

one of the parties to the contract, viz., the state. It is the stronger party in a joint

venture relationship. There is no level playing field between the state on the one hand

and the individual on the other. Therefore in this case, the level playing field should

be tilted in favour of the weaker party and reasonable and fair actions are expected of

the state. This has also been reiterated in a number of cases. 199

Further as in these cases the court has simply preferred,to look into the competence of

the legislature as to whether the state governments have the power/competence to

enact a legislation or not. It is one thing to have the jurisdiction and another to use that

arbitrarily. Therefore it is one thing to have the legislative competence and another to

make a law which is though within the authority but substantively violates many

fundamental rights. Strict adherence to this principle would mean reverting back to a

limited version of judicial review. Now the court could not only look into the

jurisdictional aspect but could also see whether the acts of legislature violate any

fundamental rights. Therefore in this case the court has abdicated its constitutionally

assigned duty, more so when competence of the legislature is taken as a justification

for violating fundamental rights.

4.5.3 The Scope of Judicial Review in Granting State Largesse

In the context of economic reforms the issue of granting state largesse has become

prominent. Largesse means privilege or monopoly given by state to a private agency

to conduct a welfare activity.2oo The material resources of the society and exclusive

privileges which were hitherto bestowed upon the government are being offered to

private parties for some price. Therefore the process of granting state largesse has

198 (2000) 3 see 379 199 R. D. Shetty v. International Airports Authority ofIndia, AIR 1979 se 1628 200 Sathe, S.P. 2004. Adminisatrtive Law. Delhi: Lexis Nexis. see p. 610

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become a contentious issue. It has acquired extreme constitutional importance

because the government has a fiduciary duty towards the people, which deters it from

granting largesse in any manner it thinks fit. Questions have also been raised, whether

the state can grant permission to private players, in matters which are of extreme

importance to national safety and security? Are there any exceptions to granting

largesse? What is the procedure that needs to be followed to grant largesse? Is there

any difference in granting largesse, when the government has monopoly and when it

does not?

In Delhi Science Forum case some of these issues were raised. First and foremost this

case, asked whether the government can give away its monopoly status and permit

private participation in a given sector. In this case the decision of the government to

do away with its monopoly position in the telecommunication sector was in question.

It was argued that, doing away with the monopoly status would amount to violation of

constitution, as government monopoly was created in the interest of the general

public. Moreover safety and security of the nation are closely connected to the control

over the telecommunication system.

While rejecting these contentions the court held that the government has full freedom

to enter into contract and grant state largesse. Merely because government has

monopoly that can not deter it from granting largesse. However, in view of its

fiduciary duty that it has towards people, the government is under constitutional

obligation. Therefore the court in exercise of its power of judicial review can check

whether the largesse has been granted in accordance with the constitutional

obligations or not. One of the most important provisions which need to be complied

with by the government is the principle of equality, and matters associated WIth that.

The court held that, "in respect of grant of any right or license by the central

government or an authority which can be held to be state within the meaning of article

12 of the Constitution not only the source of the power has to be traced but it has also

to be found that whether the procedure adopted for such grant was reasonable, rational

and in conformity with the conditions which had been announced. Statutory

authorities have sometimes used their discretionary power to confer social and

economic benefits on a particular section or group or community. The plea that the

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flrst proviso to section 4(1) of the Telegraph Act vests power in them to be exercised

as they "think flt" is misconceived since such provisions while vesting powers in

authorities including the central government also enjoin in fiduciary duty to act with

due restraint, to avoid "misplaced philanthropy or ideology".201 As such the central

government while granting licenses for establishment, maintenance and working of

telecommunications has a fiduciary duty as well. The new experiment (emphasis

added) has to fulfill the tests laid down by courts for exercise of a statutory discretion.

It cannot be exercised in a manner which is can be held to be unlawful and which is

now known in administrative law as "Wednesbury Principle,,202. Similar decision was

taken by the court in Tata Cellular v. Union of India203.

The Wednesbury principle is attracted when an authority in exercise of its

discretionary power has corne to a decision which is devoid of any plausible

justification and any reasonable person could not have taken such a decision and

which can be held to be illegal. While analyzing whether or not the Wednesbury

principles are complied with the court has to analyze whether the following

ingredients are present or not, whether power is properly delegated or not, whether a

decision-making authority has exceeded its powers, whether any legal error has been

committed, whether there has been any violation of principles of natural justice,

whether a decision has been reached which no reasonable tribunal would have

reached or, there has been abuse of power. These are some of the questions relating to

the legality of the decision making process. However it can be argued that, legality of

procedure need not always lead to legality of the results. While confining oneself to

the legality of procedure would be a narrow approach to judicial review of granting

state largesse, going into the details of the terms of tender may blur the distinction

between review and appeal. Therefore what is the proper limit of judicial review?

There is no single answer to this question. In Tata Cellular v. Union of India204 the

court insisted that the test of 'reasonable man' should be applied. Thus in that case the

court confined the scope of judicial review to the question of legality. Similar has

been the observation of court in Delhi Science Forum. Whereas in Reliance Energy

201 (1996) 2 SCC 405 202 Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1954 All ER 698) 203 1996 AIR 11 . 204 1994 IndIa w SC 17

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Ltd. V. MSRDC205 the court held that in order to ascertain whether the decision to

grant largesse is arbitrary or not, the court can go into the terms of contract. ,

While elaborating on the point of limited reviewability the court in Tata Cellular

observed that, it is not for the Court to determine whether a particular policy or

particular decision taken in the fulfillment of that policy is fair. Thus policy per se is

beyond the scope of judicial review. However the court is concerned with the manner

in which those decisions have been taken. The extent of the duty to act fairly will vary

from case to case. In other words the grounds upon which an administrative action is

subjected to control by judicial review can be classified as, illegality, irrationality, and

procedural impropriety.

Thus the court concludes that the principle of judicial review cannot be denied so far

as exercise of contractual powers of government bodies are concerned, that is

primarily intended to prevent arbitrariness or favouritism and it is exercised in the .

larger public interest or if it is brought to the notice of the court that in the matter of

award of a contract there has been exercise of power for collateral purposes. Similarly

in Delhi Science Forum the court held that, the court has to apply the test of a

reasonable man to analyze whether the terms of the granting license are strictly in

accordance of the statutory and constitutional requirement. If after having regard to

the material relied upon by the authority a reasonable man would not have come to

the same conclusion as the authority has reached then the court in exercise of its

power of judicial review can strike down the decision. The test of reasonable man has

been applied by the court because, while exercising the power of judicial review, it

not only has to test the legality of executive action but also has to ensure that the

agency freedom is not being violated. Agency freedom can be ensured by permitting

the reasonable exercise of discretion by the executive authorities. Since existence of

discretionary power cannot per se mean absence of rule, the only control over the

exercise of the discretionary power is to ensure that the power is exercised in a

reasonable manner.

It is argued that a government is still a government when it enters into business

transactions hence it cannot act in an arbitrary manner. 206The government has to take

205 Appeal (civil) 3526 of 2007 206 R.D. Shetty v. International Airport Authority, (1979) 3 see 489

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into account its constitutional obligation while granting state largesse. Although no

fixed methodology needs to be followed to distribute it 207 nevertheless procedural

fairness has to be complied with. Granting state largesse stands at a different pedestal

in comparison to other commercial activities carried on by state. While commercial

activities are generally governed by the statute under which they are entered into and

right and liabilities are determined accordingly, in the case of state largesse

compliance with constitution is insisted upon.

It has been argued that while granting largesse especially if the government has

monopoly in a given sector, then the government not only has to take into

consideration the principles of fairness and justness as envisaged in article 14 of the

constitution, it also has to comply with article 39 (b) and (c). These two provisions

taken together states that there should not be concentration of ownership and the

material resources of the country should be distributed in a manner which would be in

the interest of the society.

Article 39 is one of the prominent constitutional obligations upon the government.

This provision has definite importance with regard to the government monopolies.

Since, existence of government monopolies automatically implies the prohibition on

private individuals to carryon the said business activity; the government has to be fair

and just while granting such largesse on private individuals. A government that is

holding resources in the interest of general public cannot distribute in a manner which

is detrimental to the interest of the public. If a fair procedure is not followed the grant

of state largesse shall be violative of right to equality. Thus in the case of granting

state largesse norms can be devised on acceptance of tender based upon the socio­

economic goals that are enshrined in the Constitution,208which could ensure that every

individual has equal opportunity to compete to get such largesse.

While throwing light upon the relevance of article 39 in cases of grant of state

largesse, the court in Ashoka Smokeless differentiated between two issues, which

207 For instance in M. P. Oil Extraction v State of Madhya Pradesh, 1997 Indlaw SC 2198 the court held that government largesse can be given not only by tender but also by negotiation. 208 Union of India v. Hindustan Development Corporation, (1993) 3 SCC 500. In this case the Supreme Court has upheld a dual pricing policy applicable to small manufacturers in one hand and big manufacturers on the other on the ground that it is in consonance with the aims of the Constitution to attain economic justice in society.

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generally get mixed up. Though the issues are different, one need not be oblivious of

the preamble to all the nationalization statutes, which states that it is to sub-serve the

cause of fair and equitable distribution of resources, that nationalization is done.

Similarly, article 39 (b) and (c) of the Constitution states that there should not be

concentration of ownership and the material resources of the country is so distributed

to best serve the interest of the society. Thus there is hardly any difference between

article 39 (b) and (c) and the preambular aims of the nationalization statutes are

concerned. In view thereof, similar spirit needs to pervade the grant of state largesse

by the government. The only difference is while in case of state largesse the

government is already holding public property, therefore it is expected of the

government that while disposing off the property it has to act in a fair and reasonable

manner, in case of article 39 (b) it is expected of the state to distribute property in a

fair and equitable manner.

In Ashok smokeless the court observed that the State, while distributing its largess at a

price, if involved in distribution of a commodity, which would attract the provision of

Article 39(b) of the Constitution of India, it would stand on a different footing. Thus

as per the court, all cases of distribution of largesse do not fall into the category of

article 39 (b).

In this case the state is holding the property or has exclusive right over a property in

order to serve public interest. This is clear from the fact that whenever monopoly is

being created by the state that is at the expense of the fundamental right of citizen to

carryon trade and business of their choice. Accordingly only the essential provisions

pertaining to monopoly is protected. Hence while divesting exclusive privileges upon

private persons; the state cannot ignore the fundamental rights of people which were

restricted for the greater purpose of serving the interest of the public. In view of the

above considerations in this case the court held that while disbursing state largesse the

government has to be careful as it is holding the property in exercise of its fiduciary

duty.

The need to follow proper procedure while granting largesse has been emphasized in

a number of cases, especially where the government has been conducting business

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and having control of anyresource by virtue of a nationalization statute. Article 39

had inspired the legislature to pass a number of nationalization statutes in 1970s.

However in the policy introduced since 1990s the government is encouraging private

participation in many sectors. Amongst the different methods to attract private

participation in economic activities, one of the prominent one is disinvestment of

public sector enterprises, many of which were nationalized in 1970s. The Hindustan

Petroleum Corporation and the Bharat Petroleum Corporation were two such

nationalized enterprises which the government intended to divest. However the

government did so, without bringing any changes to the statutes under which these

undertakings were nationalized.

Court has stalled the implementation of disinvestment of the these public sector

enterprises. The decision of the government to divest its share in two oil companies

was stalled due to statutory bottlenecks. In this case the Supreme Court observed that

the governmenf has to amend the relevant law and get parliamentary approval for

carrying on disinvestment. The court relied upon article 113(2) of the Constitution to

come to this conclusion. In HPCL BPCL case the Act under scrutiny was the Burma

Shell Company (Nationalization) Act. The concerned oil companies were nationalized

as per this Act. Therefore it was necessary to amend the relevant provisions which

vests rights upon the central government to carryon the activities of these

nationalized companies.

Like the HPCL BPCL case, in another matter the fear of getting approval of the

parliament made the government stall the process of privatization. The Indian Iron

and Steel Company which is a subsidiary of the Steel Authority of India Limited had

accumulated huge amount of losses and the government decided to privatize the

company. However problem arose when the government realized that, this company

was earlier a private company and its shares were acquired by the government of

India under two Acts of Parliament, The Indian Iron and Steel Company (Taking over

of Management) Act, of 1972 and the Indian Iron and Steel Company (Acquisition of

Shares) Act, 1976. In order to carry out privatization these two Acts were to be

removed from statute book. Therefore parliamentary approval was necessary for

privatization to take place.

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Parliament's approval for the privatization of the company was listed for introduction

in the Lok Sabha on 23rd Dec 1993. Due to strong protest against that Bill it could not

be passes and instead referred to a parliamentary committee. Even the parliamentary

committee did not nod for the bill. Later it was referred to the BIFR and the

implementation of the Sick Industrial Undertakings Act, 1985 was sought. The

required budgetary allocation was not provided by the government. Thereafter the

disinvestment commission also suggested that the company should be divested.

However the company is yet to be dis invested as the government has not been able to

get parliamentary approval on the matter. The insistence of the court to get

parliamentary approval has also impacted upon other disinvestment measures by the

government.

In order to avoid the legal hurdles that were faced by the government in the HPCL

BPCL disinvestment case, the government took appropriate measures to disinvest the

NEP A Limited. The government introduced the NEP A Limited (Disinvestment of

Ownership) Bill, 2007 in the Lok Sabha on November 22, 2007. The Bill has been

referred to the Parliamentary Standing Committee on Industry. The Bill was

introduced by the Ministry of Heavy Industries and Public Enterprises.

From the above discussion it is apparent that, the parliament is taking precautionary

measures in bringing in disinvestment and the decision of the court in BPCL case has

a definite impact on the disinvest policy in general. This is also evident of the fact

that, the commitment made to article 39 in the nationalization Act cannot' be taken

away easily, without following proper procedure, and if it is done so, then such an act

can be struck down by the court.

In Reliance Airport Developers Private Limited v. Airport Authority of India,209 the

exercise of discretion by a group of minister was challenged. The decision pertained

to the privatization of airport infrastructure. The petitioners were one of the bidders

for the development of airport infrastructure in a joint venture partnership basis with

the government. Hitherto airports were within the exclusive control of the

government. In view ,of the government's policy of privatization and the deregulation

of various sectors, the government approved restructuring of airports starting with

209 Appeal (Civil) 3526 of 2007

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Delhi and Bombay. In this changed model the role of the government was critical in

selecting a technically competent bidder through a competitive process. The court was

called upon to examine whether the financial evaluation of bidders was done in a

reasonable and fair manner. In the process of deciding this question the court also·

clarified the scope of judicial review in policy matters involving technical and

complex matters.

In this case there were several layers of officials involved in evaluating the bids.

Therefore the question was who was ultimately responsible for taking decision. Can

the government delegate such important function and not be responsible as well. The

court held in the ultimate analysis it is the Empowered group of ministers which is

specifically assigned the task is responsible for taking the decision. Whether or not it

will accept the opinions rendered by various committees and consultants who were

appointed to assist the empowered group is for the group to decide. Therefore the

court refrained from intervening in the process of tender evaluation.

In this case the government review committee and the inter-ministerial group found

that the technical evaluation done by the consultants appointed by the Airports

authority is fraught with subjectivity and inconsistency. In order to iron out these

difficulties pointed out by these two committees the empowered group of ministers

requested a committee of secretaries to be set up. This committee corrected the

inconsistencies by moderating the norms of technical evaluation. The petitioners lost

out in this bid to moderation and therefore approached the court challenging the

process of evaluation.

The court held that these multiple committees were merely assisting in the decision

making process and it is for the empowered group of ministers to decide which view

to give precedence over another. It is within the discretion power of the authority to

modify the norms; this discretion is not absolute though. The court relied upon several

decisions pertaining to judicial analysis of the concept of discretion and observed that

discretion undoubtedly means judicial discretion and not whim, caprice or fancy of a

judge, but a decision having regard to the rules of reason and justice, not according to

private opinion. Unfettered discretion is not immune from judicial review. However

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the court distinguished between appeal and review and took a narrow view of judicial

review.

According to the court the prefix "judicial" before discretion limits the exercise of

judicial power and "prevents it from being wholly absolute, capricious, or exempt

from review. But the presence of the word 'discretion' permits the judge to consider

as a judge, what are vaguely termed, all the circumstances of the case and the purpose

for which he is invested- with the considerations of convenience or utility or saving of

expense rather than on considerations of strict law or technicalities." Therefore the

discretion that the empowered groups of ministers have enjoyed while taking the

decision is a limited discretion and is not unfettered in nature. If in the exercise of

administrative action there is arbitrariness or manifest error the court can in exercise

of its review power struck down such an exercise of power. In other words the court

can look into the infirmities in the decision making process and not in the decision

itself. Thus the decision-maker must understand correctly the law that regulates his

decision making power and he must give effect to it otherwise it may result in

illegality. The decision should be based upon predetermined norm, unless these norms

are known it may lead to uncertainty, and violation of rule of law.

However in Reliance Energy Limited v. Maharashtra State Road Development

Corporation Lttf lO the court intervened with the decision itself, instead of exercising

limited power of review envisaged in the previous case went on to the terms of tender,

interpreted it, and held that in view of the correct interpretation arrived at by the court

Reliance Energy Ltd. should be given more time to submit financial bid. The court

strikes down the decision to exclude Reliance from the second stage of bidding

process. In this case State of Maharashtra through Maharashtra State Road

Development Corporation Ltd. had floated Global Tender for completing Mumbai

Trans Harbour Link between Mumbai and Navi Mumbai on BOT basis. Reliance

Energy Limited along with Hyundai Engineering and Construction Company Ltd. had

also submitted their tender. However the consortium formed by these two parties were

excluded from the second stage of bidding on the ground that it has not fulfilled

certain criteria, under which they had to submit financial report for three financial

210 Appeal (civil) 3526 of 2007

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years. Due to the difference in the interpretation of words such as "write off',

"provisions" "adding back", "cash expense" and "non-cash expense" and accounting

nonns regarding these tenns and the difference in the time of beginning and end of

financial years which added to the miscalculation, the committee processing these

tender documents excluded the said consortium from the second stage of bidding

process.

Unlike other cases, in this case the court did not hold that policy issues are technical

matters and involve expert knowledge on accounting and finance, and they would not

interfere with the decision of the experts rather the court held that policy issues are

subject to judicial review. The court can go into the tenns of the tender to see whether

the decision arrived at is not based upon a clear law, and thus invalid. The court

observed that the judiciary must exercise judicial review, to avoid illegality to take

place. In order to avoid arbitrariness the court relied upon the doctrine of level playing

field, which if violated, would amount to violating article 14, 19 and 21 of the

constitution.

Notwithstanding the· decision in this case, in the wake of new economic policy the

decisions of the court have taken a different route211 and has by and large followed

the decision of the court in Tata Cellular v. Union of India.212 It is evident in a series

of cases where the court has held that the scope of judicial review is very limited in

cases of government contracts and grant of largesse.

In Sterling Computers v. M.N. Publications,213 a contract involving Mahanagar

Telephone Nigam and the Sterling Computers was challenged before the court. While

refusing to intervene in the matter the court held that, if while entering into a contract

the authority has taken into consideration relevant facts and the decision is taken in

the interest of public, that decision is just, fair and reasonable and the court will not sit

in appeal over the decision arrived at by the authority. The court observed that, in

contracts having commercial element, discretion has to be conceded to the authorities

so that they may enter into contracts with persons, keeping an eye on the

211 MJ. Antony, On Withdrawal Mode, Business Standard, 10th December 2008, New Delhi, p. 12. 212 1994 Indlaw se 17 213 (1993) 1 see 466

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augmentation of the revenue. Similar considered prompted the government to defer to

the executive decision in Combatta Aviation Ltd. v. Cochin International Airport Ltil4.

In both the cases cited above, we find that revenue generation has been taken to be a

reasonable justification for the government to ignore allegations of violation of

fundamental rights and non-observance of procedural fairness. While augmenting

revenue is reasonable, making profit is not. This is evident from an analysis of cases.

In the matter pertaining to e-auction of coal the court held that profit cannot be the

sole motive for public sector undertakings. Besides augmentation of revenue, there

are other considerations as well which has prompted the court to refrain from

intervening in matters pertaining to grant of largesse. These considerations include,

efficiency, expediency215 and lack oftechnical knowledg~.216

The court has consistently observed that, if procedural improprieties are found then . '

the court can intervene in the decision. However as discussed above the court has

resisted from upsetting administrative exercise of discretion in evaluating tenders in

Siemens Public Communication Networks Ltd case.

In Delhi Science forum whereas foreign players were encouraged to apply after

having formed joint ventures with the Indian companies. The court was of the view

that, this does not amount to lack of fairness, as the new telecom policy was focusing

on privatization with foreign participation. Further the government companies such

MTNL were already operating in metropolis. In view of their presence in the country

and the policy objective of bringing in privatization in partnership with foreign

players to improve quality of service and provide wider coverage, it cannot be said

that government undertakings are being ignored or discriminated against while

awarding licenses in different service circles. The question here is not whether the

government companies are operating or not and whether they are doing so efficiently

or inefficiently, but the prime concern for the court should have been to see whether

214 (2000) 2 2 SCC 6]7 215 Jagdish Manda] v. State of Orissa, 2007(1) RAJ 397 SC 216 Siemens Public Communication Networks Ltd. v. Union of India (2008)

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the guideline issued to apply for the tender is valid and good in law and ensures

compliance with article 14 protections?

The court however does not go into the analysis as to whether the specific clause in

the tender guidelines amounted to discrimination against the government companies'

or not. The court observed that since in certain circles MTNL is operating there is no

need for considering that to apply for rest of the sectors. Further the court also ignores

the fact that BSNL is another telephone service provider having service network all

over the country. Therefore excluding these operators from submitting tender does not

amount to discrimination.

If the concern of the court is that the new telecom policy should be effectuated and

since that policy aims at encouraging privatization with foreign participation then the

government companies could have been encouraged to enter into joint venture

agreements with foreign players. The tender documents do allow and encourage

foreign participation through joint ventures. Further foreign payers can only

participate through joint venture agreements with Indian companies. Thus, by the said

interpretation the court has on the one hand taken away the right on the part of MTNL

and on the other has encouraged Indian private companies to enter into joint venture

agreement with foreign players. These arguments gets strengthened by the fact that in

view of the government monopoly in telecommunication sector these private

companies do not have the requisite experience as envisaged under the tender

guidelines. Therefore in order to participate in the tender process Indian private

companies have to enter into joint venture agreements with foreign players.

Thus it is evident that, instead of examining exercise of discretion as per the

principles of article 14, the court presumes that in view of the considerations of

efficiency and expediency exercise of discretion is valid and the court has very

limited power of review. This has led to the conclusion that fundamental rights are not

violated. However such decision of the court is not based upon a thorough

examination of the arguments.

Similar to the issue in Reliance Energy case here also the court goes into the terms of

the tender, evaluates the pros and cons of the policy and upholds the same. Therefore

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even though the court states that the scope of review is limited, however it does

intervenes in policy decisions. Except of reiterating that policies of the government

should be based on fair just and reasonable, the court does not actually assess the

decision making process.

To conclude the summary given by the court in Tata Cellular may be stated, which

reflects the pattern of decision making that has evolved in recent times. Particularly

the principles stated here have been reiterated in all the cases pertaining to economic

policy measures; nevertheless as we have seen the court has found ways of

intervening when it has decided to do so. However for the purposes of clarity the

principles can be mentioned below.

a) The modem trend points to judicial restraint in administrative action.

b) The court does not sit as a court of appeal but merely reviews the manner in which

the decision was made.

c) The court does not have the expertise to correct the administrative decision. If a

review of the administrative decision is permitted it will be substituting its own

decision, without the necessary expertise which itself may be fallible.

d) The terms of the invitation to tender cannot be open to judicial scrutiny because the

invitation to tender is in the realm of contract. Generally the decision to accept the

tender or award the contract is reached by process of negotiations through several

tiers. More often than not, such decisions are made qualitatively by experts.

e) The Government must have freedom of contract. In other words, a fair play in the

joints is a necessary concomitant for an administrative body functioning in an

administrative sphere or quasi-administrative sphere. However, the decision must not

only be tested by the application of Wednesbury principle of reasonableness but must

be free from arbitrariness not affected by bias or actuated by mala fides.

±) Quashing decisions may impose heavy administrative burden on the administration

and lead to increased and unbudgeted expenditure. Therefore the court should refrain

from intervening in these issues.

In the cases that were discussed above, we find that, irrespective of the factors taken

into consideration, the procedure that is followed to take a decision, whether or not

the discretionary power vested upon the executive authority is exercised properly r

not, the court has upheld the validity of the law in question and has effectuated the

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policy of the central government. The rationale might be different but the end result is

similar.

4.6 Separation of Power, Independence of Judiciary and Judicial Review

Policy adjudication invariably involves questions on the proper scope of judicial

intervention. In a constitutional system where the power of the government is

distributed amongst three coordinate branches there will be inevitable overlaps while

giving effect to a policy. Therefore the court has to be cautious of the powers and

functions of other organs as well as the limits of judicial review. However, since

judicial review is constitutionally given and it is also the most powerful tool in the

hands of the court the court cannot abdicate its obligations to exercise review and

surrender to the doctrine of separation of power in a way which is destructive of the

democratic principle and the inbuilt systems of checks and balances.

Therefore the court has asserted the independence of judiciary and the power of

judicial review even prior to the introduction of economic reforms, which has

enhanced the credibility and legitimacy of the judiciary in the country. It has worked

as a guarantee to protection of fundamental rights and check to arbitrary exercise of

power by the legislature and the executive. Therefore any challenge to the exercise of

power of judicial review is taken seriously by the Supreme Court.

The Indian constitutional history is also witness to the fact that the legislature has

used various measures to reduce the scope of judicial intervention in policy matters.

These measures include, amending the Constitution or statutes to do away with the

impact of a given decision of the court, restricting or taking away access to court. The

legislature has also attempted to create a safe haven for laws giving effect to various

economic policies in the 9th schedule of the Constitution. The executive has ignored

the seniority rule and have superseded judges in the appointment process who have

not given judgments to its liking. The legislature has also sought popular verdict on

extensive judicial review of policy decisions during 1970s. These are some of the

methods used in the past to cut the court to size.

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As mentioned above one of the methods employed by the executive to reduce the

adjudicatory role of the court in economic policy matters is to do away with the

possibility to approach the court as a forum for redressal against government policies.

In past such measures have been struck down on the ground that judicial review is a

basic structure of the Constitution and that cannot be taken away either by bringing

Constitutional amendment or by enacting a statute in that regard.217 In this regard

reference may be made to the response of the Supreme Court to the process of

establishing tribunals to adjudicate upon various technical issues.

Tribunals were not part of the original Constitutional design. Part XIV - A dealing

with Tribunals was inserted by the Constitution Forty Second amendment Act, 1976.

By this amendment two articles, Article 323A and 323B was inserted. Article 323A

provides for the establishment of Administrative tribunals and Article 323 B deals

with setting up of other tribunals. By this amendment the jurisdiction of the courts

were taken away. Article 323A (2) (d) and 323 B (3) (d) provided for the same. The

only relaxation was, matters from these tribunals can be brought before the Supreme

Court by filing Special Leave Petition under Article 136 of the Constitution. Since

article 136 provides for discretionary power of the court, the right of people to agitate

the decisions of the tribunals gets extremely narrowed down. Thereby curtailment of

the power of judicial review also resulted.

In pursuance to this amendment, the government passed the Administrative Tribunals

Act, 1985. The validity of this Act was challenged in S.P. Sampath Kumar v. Union of

India218• In this case the court upheld the jurisdiction of the High courts subject to the

condition that as a substitute for the High Courts the Tribunals should be so

constituted so as to generate confidence and faith as it is there for the high courts.

In order to infuse confidence of people in tribunals the court suggested that, the

Chairperson of these tribunals should be a former or retiring judge of the high court or

a senior judge of a High court. Further the court was of the view that all the

appointments should be made by a.High power committee which should be headed by

a sitting judge of the Supreme Court as its chairperson. The court held that these

217 See Indira Nehru Gandhi v. Union of India, AIR 1975 se 2299 218 (1987) 1 see 124

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changes should be brought in the Act, within a specified time failing which the Act

shall be invalidated. The changes were brought in 1987 itself. This is a case where

not only the Supreme Court upheld its independence but also interfered in the normal

legislative function of the parliament and dictated the government to adhere to its

decision failing which, it shall use its power of judicial review to invalidate an act of

the parliament.

Similar spirit was echoed in R.K. Jain v. Union of India,219 where the court held that,

as far as possible more and more judges should be appointed as chairpersons and

members of the tribunals. This will ensure independence, efficiency and fair

administration of justice. However it was in L. Chandrakumar v. Union of India220

that the court held that, since judicial review is a basic structure of the Constitution, it

cannot be taken away by mere legislative enactments or constitutional amendments.

Therefore the court invalidated article 323A (2) (d) and 323 B (3) (d), as they take

away the jurisdiction of the court. Therefore judicial remedies under article 32, 226

and 227 cannot be taken away by the above mentioned articles.

Though the Constitutional validity of Article 323A and 323B was upheld except 323A

(2) (d) and 323 B (3) (d), what remains to be seen is whether, the lists provided in

these articles about the kind of tribunals that can be established are complete in

themselves or there is legislative competence of the Parliament which goes beyond

this list. This issue has been resolved in favour of the parliament in Union of India v.

Delhi High Court Bar Association.221 In this case the court held that article 323A and

323 B do not in any way restrict the legislative competence of the Parliament to make

a law establishing Tribunal, which is not specifically mentioned in the list in the

above mentioned articles.

Thus in this case the establishment of the Debt Recovery Tribunal and the Debt

Recovery Appellate Tribunal was held to be constitutional. The enactment of the Debt

Recovery Act and the setting up of these tribunals were necessitated to give teeth to

the debt market, one of the first steps was to set up a mechanism whereby debts due to

219 (AIR 1993 SC 1769) 220 (AIR 1997 SC 1125) 221 Appeal (civil) 4679 of 1995

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banks and other financial institutions could be recovered and re-canalized for

economic development. Since in the pre-liberalization era it was difficult for creditors

to enforce their claims, there was an urgent need to mitigate such a situation and bring

back vibrancy in the debt market. As a consequence the government enacted the

Recovery of Debts Due to Banks and Financial Institutions Act 1993, in pursuance

thereof the Debt Recovery Tribunal was set up. This tribunal was assigned the task of

recovering debts due to banks and financial institutions which is not less than 1

million. However the constitutionality of this Act was challenged in a number of

High Courts. The matters were clubbed together and the final decision was delivered

by the Supreme Court in 2002 in the case of Delhi High Court Bar Association.

Meanwhile an interim order was passed by the Supreme Court permitting the Debt

Recovery Tribunal to remain functional. This is one of such cases where the court

asked the central government to make changes as per the directions of the court. The

government obliged by making amendments in the Act. Keeping in view the

economic importance of the Act the court upheld the validity of the Act.

Although it was contended that Act violates the independence of judiciary and takes

away the power of judicial review which is a basic structure of the Constitution, the

court rejected this contention and upheld the validity of this Act.

According to the court, creation of tribunal does not violate independence of judiciary

nor does it take away the power of judicial review. Though tribunals do not fall into

the strict separation between the judiciary and the executive as envisaged in article 50

of the Constitution, they are surely part of the judicial system. Even if tribunals take

away the power of the civil courts to decide upon cases that are specifically assigned

to it, nevertheless the decision of the tribunal is not final and the same can be

challenged before the high court under article 226, and 227 of the Constitution. Thus

even the power of judicial review remains intact.

In order to further ensure the independence of judiciary, the court during the pendency

of the appeal made suggestions for amending some of the provisions of the Act,

which were carried on by the legislature. Amongst the clauses amended, the provision

on appointment of personnel in the tribunal was one. By this suggestion the court

ensured that Rules framed under the Act for the appointment of Presiding Officers of

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the Tribunals as well as the Presiding Officers of the Appellate Tribunals provides for

appointments being made by a Selection Committee and each of the Selection

Committee is to consist of the Chief Justice of India or a Judge of the Supreme Court

as nominated by the Chief Justice of India along with other members referred to in the

said Rules. Thus the court does not have to part with the power of appointment of

presiding officers, even if the body that shall be constituted is not purely judicial in

nature.222Though in this Act the necessary amendments were brought in, in another

matter the government has not obliged the judiciary with similar amendments.

In Brahm Dutt v. Union of India,223 the Constitutional validity of Rule 3 of the

Competition Commission of India (Selection of Chairperson and other Members of

Commission) Rules, 2003, was challenged. The central government contended that in

view of the changed perception of the government, where elimination of monopolies

is no more the focus of the judiciary but promotion of competition is the government

should appoint the most suitable person for the job. More importantly, every bench of

the competition commission had to have a judicial member.

Notwith~tanding the pleadings of the government that the competition commission is

a regulatory body and therefore should be headed by a person who has expert

knowledge in the subject, the court insisted that the commission should be headed by

a judicial member. Further the judicial member should be nominated by chief justice

of India, or a committee presided over by the chief justice. Elaborating on the issue

the court held that it should be headed by a person who is or has been a Chief Justice

of a High Court or a senior Judge of a High Court in India in terms of the directions

contained in the decision in S.P. Sam path Kumar. v. Union of India224.

The court ignored the distinction between the adjudicatory nature of a tribunal and the

regulatory nature of the competition commission. The argument by the central

government that the regulatory role will not impinge upon the power of judicial

review and shall not violate the independence of judiciary was not given heed to.

Unconvinced by these arguments the court observed that appointing a bureaucrat as

222 The court admits that Tribunals are not strictly judicial, but that does not deter it from controlling the power to appoint the presiding officers. 223 Writ Petition (civil) 490 of 2003 224 (1987) 1 see 124

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the Chairman of the Commission is a direct attempt to encroach upon the judiciary.

The government should amend the rules to set up two bodies, one expert body

(advisory and regulatory) and the other adjudicatory body, followed by an appellate

body.

This decision of the court had adverse impact upon the working of the competition

commission as since then nobody has been appointed as the Chairman of the

Competition of India and it is headed by a single adhoc chairman cum member of the

Commission.

Another enactment having direct effect on the operation of the corporate sector in

India is the Companies Second Amendment Bill. The Constitutional validity of this

Bill was challenged before the Madras High Court on the grounds that the provisions

of the bill violate the principle of separation of power, the independence of judiciary

and takes away the power to exercise judicial review, which is a basic structure of the

Constitution. In Thiru R. Gandhi President v. Union of India225 these issues have

been raised based on the provision of the bill which provides for setting up the

National Company Law Tribunal, and the National Company Law Appellate

Tribunal. The Bill also provides for a single appellate structure, whereby appeal shall

only lie to the Supreme Court. This provision is in contrast to the decision of L.

Chandrakumar. Thus the issue is can these tribunals be set up which might amount to

curtailment of the power of the judiciary. In its decision delivered in 2004 the Madras

High Court held that some of the provisions of the Companies Second Amendment

Act are unconstitutional. The court also issued stay order on the operation of the

amendment act until suitable amendments are made.

The central government has challenged the order in the Supreme Court, which is yet

to be disposed off. In view of the legal battle that is going on, the national company

tribunal has not been able to come into being and relevant matters are being dealt with

by the BIFR. A three judge bench of the Supreme Court referred the matter to a five

judge bench in view of the fact that, the establishment of these tribunals will amount

to taking away all powers of the High courts under articles 226 and 227", and virtually

. all company related matters shall get transferred to these tribunals.

225 (2004) 120 Comp Cas 510 (Mad)

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Economic Policies and Constitutional Adjudication since 1991

The three judge bench headed by chief justice K.G. Balakrishnan is apprehensive that

such "wholesale transfer of powers' as contemplated by the Companies (Second

Amendment) Act, 2002 which would offend the Constitutional scheme of separation

of powers and independence of judiciary, so as to aggrandize one branch over the

other.,,226

The above discussed developments show that the Supreme Court has been

consciously asserting the independence of judiciary. It has been doing so by keeping

the power to appoint the people manning various bodies carrying out judicial

functions, and it has been protective about the scope of judicial review. Any apparent

curtailment of this has been struck down by the court. As a result it has sometimes

ignored its own principle of limited reviewability on economic policy issues. Instead

it has ventured into the analysis of the importance of judicial review and the need for

independence of judiciary in all such cases.

One of such cases is Mardia Chemicals Ltd. v. Union of India.227 In this case validity

of the Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interests' Act 2002 was challenged. Due to the limited success of the Debt

Recovery Act in recovering debt, it became necessary to enact another law, which

could provide a short cut to recovery of debts. This aim was attempted to be achieved

by omitting. the role of the court in the process. In that sense the Securitization and

Reconstruction of Financial Assets and Enforcement of Security Interests Act 2002

empowered banks and other financial institutions to enforce their security interests in

an extra-judicial manner.

The provisions of this Act were provided that such creditors could seize and sell

collateral without recourse to courts if a defaulter does not respond within a period of

60 days. These provisions of the Act were challenged to be violative of constitutional

principles, principles of natural justice besides attempting to take away the power of

judicial review, which is one of the basic structures of the Constitution. In 2004 the

Supreme Court upheld the Constitutional validity of the Act except for section 17 (2),

which required the borrowers to deposit 75 percent of the claim prior to contesting the

226 R. Gandhi v. Union of India Appeal (civil) 3067 of 2004 227 Transfer Case (civil) 92-95 of 2002

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claim. Only then were they allowed to contest the extra-judicial enforcement under

the Act. This provision was suitably amended in 2005.

Thus the court has jealously guarded against any attempt by the legislature to either

limit the scope of judicial review or hamper judicial independence. Here it may be

noted that the court has adopted a very narrow approach to the concept of

independence of judiciary, which means and includes the authority to have a decisive

voice in appointments to the judicial posts, irrespective of the forum of adjudication.

Though the authority to appoint judges is only one of the aspects of independence of

judiciary the relevance of this approach lies in the fact that it can signal out that the

court is independent and it does not function under the influence of either the

legislature or the executive and its importance cannot be undermined as long as the

court is empowered with judicial review. The most glaring example of this approach

has been the decision of the court in the matters relating to the appointment of judges

in the higher judiciary. Justice Verma in SCORA v. UO/228 used this principle in

coming to the conclusion that the opinion of the Chief Justice of India should have

primacy over other consultees in the appointment of judges.

The Constitution under articles 124 and 217 of the Constitution specifically provides

that the chief justice shall be "consulted" in the process of appointment of the judges

to the higher judiciary. The term "consultation" has been interpreted by the Supreme

Court to mean "concurrence". This judgment has led to limiting the power of the

228 In Supreme Court Advocates on record Association v. Union of India (1993) 4 SCC 441held, The expressions "the Chief Justice of India" and the "Chief Justice of the High Court" in Articles 124(2) and 217(1) of the Constitution mean the said judicial functionaries as representatives of their respective courts. So the opinion of the Chief Justice of India in the process of consultation of appointments to the superior courts must be formed in consultation with two of his senior most colleagues. Apart from that the Chief Justice of India must also consult the senior most Judges who comes from the same State (the State from where the candidate is being considered). This process of consultation shall also be followed while transferring any Judge/Chief Justice from one State to another. On the same parity the opinion of the Chief justice of the High Court must be formed after consulting two senior most Judges of the High Court. There is no justification. Whatsoever, for excluding the puisne judges of the Supreme Court and of the High Court form the "consultee zone" under article 217(1) of the Constitution. But it is neither possible nor the requirement under the Constitution to consult all the puisne Judges. The ascertainment of the opinion of the other Judges by the Chief justice of India and the Chief Justice of the High Court must be in writing and form part of the final recommendation. Here primacy has three meanings. (i) primacy of the Chief Justice of India as 'paterfamilias' of the Indian Judiciary, (ii) primacy to be accorded to his views amongst the consultees referred to in Articles] 24(2) and 217(1), and (iii) primacy in the sense of Chief Justice of India's view being binding on the President i.e. the executive.

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executive to appoint judges to the high courts and the Supreme Court. In order to

bring apparent objectivity the court has provided for the formation of collegiums.

Thus irrespective of providing such structural checks, the court does retain the power

to appoint judges and this position has been defended by the chief justice. 229

Thus the cases discussed in this section give an unambiguous indication towards the

efforts by the Supreme Court to guard against executive and legislative attempts to

curtail the scope of judicial review and the independence of the judiciary. The court

clearly prefers self-restraint over regulation by the other branches of the government.

It also sends a signal that the judiciary is independent in India, and that shall not be

compromised. However the court has taken a symbolic view of the independence of

judiciary, wherein it has vehemently protected the authority to voice its choice in

appointment of judges to the higher courts. Here again the court prefers self regulation

and therefore has established the collegiums system to check elements of arbitrariness

in appointment of judges. The court has asserted these positions for· itself,

notwithstanding the impact it has on the impugned statutes, the validity of which has

been contested before the court. Thus limited reviewability of policy matter is clearly

subjected to the judicial self assertion.

4.7 Concluding Observations

Since the introduction of the new economic policy in July 1991, the Indian Supreme

Court has been called upon to decide a number of cases where one or the other

economic policy decision of the government has been challenged to be violative of

the provisions of the constitution. In majority of cases the court has held that it is

beyond the power of the judiciary to adjudicate upon any such policy issues.

Nevertheless the exercise of the power of judicial review by the Supreme Court had

important effects on the policy decisions of the government. Though the court has

refrained to pronounce upon the validity of a policy but many a times the decision of

the court on aspects of implementation has had direct impact on the continuance of

the policy itself. For instance, the decision of the court in the divestment of oil sector

229 Speech by Chief Justice that the Chief Justice will have primacy and the executive cannot have the ultimate authority to appoint judges.

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public undertakings, had impact upon the decision of the government to divest its

share in similarly placed public sector undertaking. Few other statutes have been

suitably amended or the nature of public sector enterprises has been converted into

government companies prior to the divestment of government shares. Therefore

precautionary measures are being taken by the government to ensure that its policy

initiatives do not get delayed due to legal battles.

While in the above mentioned example we find that the court has struck down the

method of implementing a policy by the government, there have been instances where

the judiciary and the legislature have collaborated to effectuate a policy. For instance

as a result of the decision of the Supreme Court amendments have been brought in the

Debt Recovery Act, wherein a collaborative approach was adopted by the legislature

and the Supreme Court. Thus the court has followed varied approaches to respond to

economic policy issues. However the decisions reached is same in all such cases, the

court has upheld the actions of the legislature and the executive. Exceptions are few.

Certain other trends have also emerged, which can throw light upon the concept of

judicial review, justiciability of policy issues and the exception to limited

reviewability of policies. The court has held the following:

a) The court has reiterated that policy matters are beyond the scope of judicial review

and therefore matters pertaining to economic policy decision cannot be reviewed.

b) The court cannot exercise judicial review on policies because, the court is not the

right forum, the subject matter is not amenable to review, court procedures area not

conducive, court lacks expertise, moreover efficiency and expediency demands lesser

role for court.

c) Due to limited reviewability of policy issues, the court has deferred to the decision of

the legislature and the executive.

d) Court has explained that deferring to legislature and the executive decision is not

accepting their supremacy, but recognizing the separation of power inherent in the

constitution.

e) The court has held that independence of judiciary and the power of judicial review are

part of the doctrine of basic structure and cannot be taken away by any law including

constitutional amendment.

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Economic Policies and Constitutional Adjudication since 1991

f) The legislature should take policy decisions because; it knows the interest of the

people better as it is the elected representative of people.

g) Judicial restraint and lack of exercise of judicial discretion is based on the belief that

the judges are no experts on economic matters and lack knowledge on the subject.

h) Besides the forum and the subject matter even the strategy to challenge the new

economic policy through public interest litigation has been held to be inappropriate.

i) The power of judicial review is different from appeal and therefore in matters of

review, the court cannot go into the merits of the case and also cannot interfere with

the decision reached by the executive or legislative authority.

j) The court can only review the process of reaching a policy decision and the process

of carrying that out.

k) If any violation of law or constitution is found, or the fundamental rights are being

taken away by the process of implementation of such policy, the court can look into

the matter in exercise of its review power.

\) While reviewing a policy decision the court shall follow certain parameters, which

are the Wednesbury principles including all the three ingredients thereof, viz.,

principles of irrationality, illegality and procedural improprieties.

m) Equality, whIch has been interpreted to mean non-arbitrariness, justness and fairness

are the touchstones against which the executive and legislative decisions are to be

tested.

n) Besides principle of non-arbitrariness, equality also includes principles of reasonable

classification, and the doctrine of level playing field.

0) Doctrine of level playing field has been invoked in the sense that unless equal

opportunity to compete is provided, right to equality under article 14 shall gets

violated, inviting the exercise of judicial review.

p) Adherence to principles of natural justice have no or limited applicability in matters

of economic policy.

Notwithstanding these observations of the court certain trends have emerged, which

bring forth the dissonance between judicial observations and the consequences that

have followed and these observations. These are:

a) Although the court observes that it will not intervene in policy matters, it has

intervened in such matters and has invariably upheld economic policy, exceptions are

few. The approach of the court has been facilitative in nature. Thus judicial deference

has given rise to judicial acceptance and legalization of policies.

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b) Although the court has reiterated that procedural aspect of policy decisions are open

to judicial review, barring only one case, in rest other cases irrespective of the

procedure followed the court has upheld the constitutionality of the procedure. This

has amounted to abdicating the duty to check the excesses committed by other organs

of the government, which is one of the justifications for granting the power of review

on the judiciary.

c) Although judicial review is justified on the grounds of protection of fundamental

right, the court has either not been able to uphold such rights or has followed not so

strict standards of scrutiny in cases where violation of fundamental rights are alleged.

This weakens the second justification for the exercise of judicial review.

d) Although the court has deferred to the policy decisions of the government in majority

of cases, nevertheless it has intervened in the policy if the independence or judiciary

or the power of judicial review has been affected. The assertion of these factors has

led to uncertainty as to the future exercise of the power of judicial review.

In view of the above mentioned trend that has emerged, we shall analyze the

approaches that have been followed by the court while deciding the cases on

economic policy issues. We shall also look for explanations as to the factors that may

have influenced the decision making behavior of the judges. These issues have been

dealt with in the next chapter.

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