2G Spectrum- Reason for Mineral Auction in India

 

                                                                                                                                        -        Rajesh Deoliya

[ rajeshdeoliya@gmail.com]

THE grant of licenses for business always invite questions of transparency and related litigation to delay the purpose for which it was granted. The 2G spectrum case has dealt the methods of grant of licenses in detail and preferred auction as better mean for allocation of natural resources. In doing so, the apex court analyzed the a) the doctrine of public property, b) First – cum- First – Serve method of grant and c) auction method for grant of natural resources. Interestingly, use of word "auction" surfaced first time in the recommendation of Telecom Authority of India (TRAI) in year 2007 though it was not preferred over the First-Cum-First Serve criteria for allocation of spectrum. This decision of central government created uproar and brought drastic changes in grant of licenses in the country. The effect of this decision also affected grant of mineral concessions in the country. Since the grant of licenses of public property is continuous process hence it is necessary to understand the views of apex court on all these methods and to develop  cautious approach in dealing with the disposal of public property so that interest of all groups are satisfied. Here we will be restricting to the mineral concessions.

Public trust doctrine and trusteeship :

The State holds natural resources in a fiduciary relationship (a relationship in which one party places special trust, confidence, and reliance in and is influenced by another who has a duty to act for the benefit of the party) with the people. As far as trusteeship is concerned, the State holds all natural resources as a trustee of the public and must deal with them in a manner that is consistent with the nature of such a trust.  The court referred that no part of the natural resource can be dissipated as a matter of largess, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to best subserve the common good.

The First-Cum-First- Serve:

The section 11(1) of MMDR,1957 ( prior to the amendment in 2015)  gave rights to state government to  grant a prospecting license or mining lease, as the case may be, on preferential basis (first-come-first-served policy )subject to fulfillment of certain conditions. However, when number of applicants for grant of mineral concessions in an area were more than one than the state governments were giving fair opportunity through hearing to justify why the concession shall be granted to them. 

The supreme court observed a fundamental flaw in the first-come-first-served policy inasmuch as it involves an element of pure chance or accident. In matters involving award of contracts or grant of license or permission to use public property, the invocation of first-come-first-served policy has inherently dangerous implications. Any person who has access to the power corridor at the highest or the lowest level may be able to obtain information from the Government files or the files of the agency/instrumentality of the State that a particular public property or asset is likely to be disposed of or a contract is likely to be awarded or a license or permission is likely to be given, he would immediately make an application and would become entitled to stand first in the queue at the cost of all others who may have a better claim.

In reality, the first-cum-first– serve policy of grant of mineral concessions helped in search of vast natural resources and mines development though the issues of transparency and favoratism were cropping up time to time.

The Auction:

In September 2010, the MMDR Act, 1957, was amended to introduce competitive bidding of coal leading to the framing of rule by the central government for  Auction i,e Competitive Bidding of Coal Mines Rules, 2012 but it was not applicable on other minerals. The competitive bidding was also the result of coal scams. Hence, after 2G Judgment the confusion prevailed over its applicability on mineral concessions because they are also natural resources. During the hearing on presidential reference on 2G spectrum Mr T.R. Andhyarujina, senior counsel, first time pointed out conflict between provisions of the statutes and the 2G case  judgment, specifically with reference to Sections 10 and 11 of the Mines and Minerals (Development and Regulation ) Act, 1957 and mandated auction for all natural resources.  The court viewed that while transferring or alienating the natural resources, the State is duty-bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process but it did not granted it status of a constitutional principle and considered that alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. The court also emphasized social and welfare aspects in grant of licenses over profit maximization.

The judgment lead to the amendment in the MMDR Act,1957 in year 2015  and now all minerals are granted through auction mechanism only.  

The Burning Issue:

After 5 years of implementation of mineral auction system in India, the response from the bidders is not what was envisaged. The issue of equality in grant of licenses is still on. The auction has prevented participation of applicants of lower and middle income groups, budding entrepreneurs and paved way for rich and resourceful applicants in grant of mineral concessions. The reducing final price offers are indicative that the auction system needs critical assessment. It has restricted the growth of minerals and mines development. Huge advance payments are discouraging. The auction is lacking the social and welfare principles. There is need for rethinking on the method of grant of mineral concessions