Giving its opinion on the Presidential reference arising out of 2G verdict, a five-judge constitution bench headed by Chief Justice S H Kapadia also said that common good is the touchstone for any policy and if it meets that then any means adopted is in accordance with the constitutional principles.
However, at the same time the court upheld the executive's prerogative to alienate natural resources as a policy matter and reserved the right to strike it down if there was any arbitrariness in the decision.
The apex court was giving its opinion on a Presidential reference seeking a clarity on the 2G verdict delivered by it in February 2 while striking down 122 telecom licences. The court had then held that auction should be the way for allocation of resources.
Top ministers in the government hailed the opinion as giving "constitutional clarity" on the auction issue and hoped that institutions like CAG would no longer use auction as benchmark for computing losses.
The government has been under all round attack after the CAG reports on 2G spectrum which had come out with a presumptive loss of Rs 1.76 lakh crores and on coal block allocations that assumed a gain of Rs 1.86 lakh crore to private companies.
In its opinion, the bench observed that auction despite being a more "preferable method" of allotment of natural resources cannot be held to be a constitutional mandate.
"In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra-vires the constitutional mandate," the court said.
The bench, which also comprised justices D K Jain, J S Khehar, Dipak Misra and Ranjan Gogoi, said that auctions may be the best way of maximizing revenue.
But, it felt, revenue maximisation may not always be the ultimate motive of the policy and natural resources can be allocated to private companies by other methods for the purpose to subserve public good.
"Common good is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the common good and if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in the Article," the bench said.
It said alienation of natural resources is a policy decision, and the means adopted for the same were thus, executive prerogatives.
"However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution," the bench said.
"Rather than prescribing or proscribing a method, we believe, a judicial scrutiny of methods of disposal of natural resources should depend on the facts and circumstances of each case, in consonance with the principles. Failing which, the Court, in exercise of power of judicial review, shall term the executive action as arbitrary, unfair, unreasonable and capricious," the bench said. .