New Delhi, Feb. 2: The Supreme Court today took an extraordinary stride into policy-making when it junked the first-come-first-served formula for 2G and advocated auction for natural resources.

The judges went to great lengths to explain why they stepped into what was till now considered the exclusive domain of the executive or the government, citing “public interest” as the decisive factor.

Courts usually confine themselves to deciding if a financial policy has been implemented in line with the law and prescribe punishment for transgressions, without going into whether such a policy should have been chosen or not.

However, the UPA government appeared more eager to get the 2G millstone off its neck and pin the entire blame on A. Raja than debate larger issues of polity.

Kapil Sibal, the telecom minister, this afternoon listed the lessons from the episode: all ministers “must consult everybody and move forward” on policy decisions and “not commit irregularities”.

“After the Supreme Court verdict, now there is clarity, sanity and hope that it will get larger investors in the sector,” said Sibal, who added that he had not seen the verdict.

Unlike the government that seemed to lack the stomach for a healthy discourse, the full judgment delivered by Justices G.S. Singhvi and A.K. Ganguly devoted over 900 words to explain the reasons why they reached such a verdict.

The judgment itself acknowledged the uncommon nature of its intervention.

“In majority of judgments relied upon by the learned attorney-general and learned counsel for the respondents, it has been held that the power of judicial review should be exercised with great care and circumspection and the court should not ordinarily interfere with the policy decisions of the government in financial matters,” the order noted.

The judges conceded that “there cannot be any quarrel with the proposition that the court cannot substitute its opinion for the one formed by the experts in the particular field and due respect should be given to the wisdom of those entrusted with the task of framing the policies. We are conscious of the fact that the court should not interfere with the fiscal policies of the state.”

The judges then listed the compulsions that forced their hand. “However, when it is clearly demonstrated that the policy framed by the state… is contrary to public interest or is violative of the constitutional principles, it is the duty of the court to exercise its jurisdiction in larger public interest and reject the stock plea of the state that the scope of judicial review should not be exceeded beyond the recognised parameters.”

The Supreme Court added: “When matters like these are brought before the judicial constituent of the state by public spirited citizens, it becomes the duty of the court to exercise its power in larger public interest and ensure that the institutional integrity is not compromised by those in whom the people have reposed trust and who have taken oath to discharge duties in accordance with the Constitution….”

The court reminded the government that although the state was the “legal owner” of natural resources as “a trustee of the people”, the distribution process must be guided by the doctrine of equality and public good.

The court said this principle applied to expert watchdogs such as the Telecom Regulatory Authority of India (Trai).

“Even though the scope of judicial review in such matters is extremely limited, keeping in view the facts which have been brought to the notice of the court that the mechanism evolved by Trai for allocation of spectrum and the methodology adopted by the then minister (A. Raja) and the officers of DoT for grant of licences may have caused huge loss to the nation, we have no hesitation to record a finding that the recommendations made by Trai were flawed in many respects…,” the judges said.

The court dwelt at length on the first-come-first-served policy, which was followed since 2003 when the NDA was in power.

“There is 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 licence or permission to use public property, the invocation of first-come-first-served policy has inherently dangerous implications,” the court said.

The judges illustrated the inherent dangers in such a policy. “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 licence 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.

“This court has repeatedly held that wherever a contract is to be awarded or a licence is to be given, the public authority must adopt a transparent and fair method for making selections so that all eligible persons get a fair opportunity of competition. To put it differently, the state and its agencies/instrumentalities must always adopt a rational method for disposal of public property and no attempt should be made to scuttle the claim of worthy applicants.”

The court then referred to the advantages of auction while dealing with natural resources such as spectrum.

“When it comes to alienation of scarce natural resources like spectrum etc., it is the burden of the state to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest. In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people….”

The court laid stress on auctions again. “In other words, while transferring or alienating the natural resources, the state is duty-bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process,” the judges said.

Government sources had earlier said they were not questioning the principle behind auctions but were apprehensive of big players with deep pockets cornering huge shares.

From today’s judgment, it appears that the court and Raja had used some identical words to justify their conflicting positions.

“The exercise undertaken by the officers of the DoT…, under the leadership of the then minister, was wholly arbitrary, capricious and contrary to public interest, apart from being violative of the doctrine of equality,” the judges said.

Another part of the judgment, which details how Raja brushed aside the Prime Minister’s suggestions to ensure fairness and transparency, says: “…the minister (Raja) rejected the same by saying that it will be unfair, discriminatory, arbitrary and capricious to auction the spectrum to new applicants because it will not give them level playing field.”

The first-come-first-served policy is usually followed when markets are still in a development stage — such as the telecom sector at the start of the millennium. This is intended at adding depth by drawing more players and making services cheaper.

“There are instances in which auction is not the best option. However, it is the only transparent option,” said corporate lawyer Sameer Parekh.

“Auctioning may see competitive bidding. As a result, the resource being allocated may end up being sold at exorbitant prices. This in turn will be passed on to consumers,” he added.

He pointed out that earlier, because of insufficient demand, DDA flats were allotted on first-come-first-served basis. Later, when demand picked up, a lottery system was adopted.

“There’s no reason why first-come-first-served won’t work. As they say, if people are honest, every system will work, if not, none will,” Parekh added.