Tussle between Property Rights and Common Good: Supreme Court Clarifies

Introduction

In Property Owners’ Assn. v. State of Maharashtra¹, a 9-Judge Constitution Bench, has held by a majority of 8:1, that all private property does not constitute “material resources of the community” under Article 39(b) of the Constitution.² It was further held that only some privately owned resources may come under Article 39(b) provided they meet the qualifiers of being a “material resource” and “of the community”. The Bench unanimously held that Article 31-C of the Constitution,³ to the extent that it was upheld in Kesavananda Bharati v. State of Kerala⁴ (Kesavananda Bharati) remains in force. The Bench also held that the single sentence observation in Mafatlal Industries Ltd. v. Union of India⁵ (Mafatlal) to the effect that “material resources of the community” include privately owned resources is part of the obiter dicta of that judgment and would not be binding.

The majority of 7 Judges, speaking through Chief Justice of India (CJI) Dr D.Y. Chandrachud (as he then was) disagreed with the observation in Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd.⁶ (Sanjeev Coke) and view taken by the minority in State of Karnataka v. Ranganatha Reddy⁷ (Ranganatha Reddy) that “material resources of the community” means and includes all resources, natural, man-made, public and privately owned, inter alia for the reason that the said interpretation is incompatible with Article 300-A.

Justice B.V. Nagarathna, in her separate concurring opinion, held that all private resources except personal effects of an individual can be “material resources of the community” provided that they are transformed into a material resource by State action such as acquisition or vesting. She further held that mere vesting of a privately owned resource would not amount to “distribution” for the purposes of Article 39(b).

Justice Sudhanshu Dhulia disagreed with the majority’s view on Article 39(b). He held that all private resources can come under the ambit of “material resources of the community” and holding otherwise would upset the meaning given to the phrase by several judgments both before and after Ranganatha Reddy case.⁸

History of the reference

The impugned legislation

Chapter VIII of the Maharashtra Housing and Area Development Act, 1976 (Mhada Act) provides for the repairs and reconstruction of dilapidated buildings in Greater Bombay. Under Section 84 buildings are divided into 3 categories:

(i) Category A: Buildings erected prior to 1-9-1940.

(ii) Category B: Buildings erected between 1-9-1940 and 31-12-1950.

(iii) Category C: Buildings erected between 1-1-1951 and 30-9-1969.

In 1986, Chapter VIII-A (Sections 103-A to 103-M) was inserted into the Mhada Act to protect the occupiers’ shelter, prevent building collapses and to promote equitable distribution of ownership and control of tenements to subserve the common good. Its provisions apply to the buildings falling in Category A. Section 103-B of the MHADA Act provides for the acquisition of the land together with the building thereon by the State Government on a written request made by not less than 70% members of a cooperative society of occupiers of a building falling under Category A. After the payment is deposited by the society with the Land Acquisition Officer, the MHADA Act shall convey the land acquired to the cooperative society of the occupiers thereof with its right, title and interest. Section 1-A was also inserted into the MHADA Act vide the same amendment, which provides that the MHADA Act is protected by Article 31-C of the Constitution as it was enacted to give effect to the principles specified under Article 39(b) which provides that the State shall endeavour to secure that “the ownership and control of material resources of the community are so distributed as best to subserve the common good”.

Beginning of the lis

The appellants challenged the constitutionality of Chapter VIII-A of the MHADA Act before the Bombay High Court, on the grounds that it violates Articles 14 and 19 of the Constitution⁹ on the ground that it deprives the valuable rights of the owners of the properties for negligible amounts and confers the rights on the occupiers of the building irrespective of their status because term “occupier” as defined in the MHADA Act would include even trespassers. It was further contended that the classification of the buildings was “unreal” and there was no effective machinery to fulfil the object of the Act. The High Court dismissed the writs filed by the appellants and upheld the constitutional validity of Chapter VIII-A.¹⁰ The High Court relied upon the decision in State of Maharashtra v. Basantibai Mohanlal Khetan¹¹ (Basantibai Khetan) where the Supreme Court upheld Sections 44(3) and (4) of the MHADA Act on the ground that they were protected under Article 31-C. The High Court further held that the provisions of Chapter VIII-A are not discriminatory and do not violate Articles 14 and 19. Thereafter, special leave petitions were filed against the said judgment of the High Court.

Reference to the 9-Judge Bench

The question before the 7-Judge Bench¹² was with respect to the interpretation of Article 39(b) of the Constitution which speaks of the distribution for the public good of the ownership and control of the material resources of the community. The Bench also took note of the 9 Judge decision in Mafatlal case¹³ wherein the Supreme Court had observed “that the ‘material resources of the community’ are not confined to public resources but include all resources, natural and man-made, public and private owned is repeatedly affirmed by this Court”.

Therefore, the Bench was of the opinion that the interpretation of Article 39(b) requires reconsideration by a Bench of 9 Judges. It was directed that the matter be listed before a Bench of 9 Judges after the judgment in I.R. Coelho v. State of T.N.¹⁴ is passed because the similar issues have been raised therein.

Hence, the matter reached the Bench of 9 Judges and the following questions were framed for consideration:

(1) Whether Article 31-C (as upheld in Kesavananda Bharati case¹⁵) survives in the Constitution after the amendment to the provision by the Forty-Second Amendment was struck down by the Supreme Court in Minerva Mills v. Union of India¹⁶?

(2) Whether the interpretation of Article 39(b) adopted by Justice Krishna Iyer in Ranganatha Reddy case¹⁷ and followed in Sanjeev Coke case¹⁸ must be reconsidered? Whether the phrase “material resources of the community” in Article 39(b) can be interpreted to include resources that are owned privately and not by the State?

Historical context of Article 31-C

Article 31-C was inserted into the Constitution in 1971 by Section 3 of the Constitution (Twenty-Fifth Amendment) Act, 1971.¹⁹ At the time, it read as follows:

31-C. Saving of laws giving effect to certain directive principles.—Notwithstanding anything contained in Article 13, no law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39 shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by Articles 14, 19 or Article 31; and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy:

Provided that when such law is made by the legislature of a State, the provisions of this article shall not apply thereto unless such law, having been reserved for the consideration of the President has received his assent.

Article 31-C was challenged in Kesavananda Bharati case²⁰, wherein, the validity of the first part of Article 31-C was upheld by a majority of 7 Judges and the words, “and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy” were struck down.

Thereafter, Article 31-C was amended by the 42nd Amendment and the words “the principles specified in clause (b) or clause (c) of Article 39” were substituted with the words “all or any of the principles laid down in Part IV”. The said amendment was challenged in Minerva Mills case²¹. It was held that the amendment was beyond the amending power of the Parliament and void since it damaged the basic structure of the Constitution. Parallelly, the Court was also hearing a challenge to Article 31-C as upheld in Kesavananda Bharati case²², in Waman Rao v. Union of India²³. The decision of the majority in Waman Rao case²⁴ reiterated the position as set out in Kesavananda Bharati case²⁵ and upheld the validity of Article 31-C (as it stood prior to the 42nd Amendment).

Contentions raised by the appellants

With respect to the first issue, appellants argued that the effect of the 42nd Amendment is that the words “the principles specified in clause (b) or clause (c) of Article 39” were omitted and substituted with “all or any of the principles laid down in Part IV” and the effect of the decision in Minerva Mills case²⁶ was only to the extent of striking down the words inserted by the 42nd Amendment. The Court cannot revive the words which are specifically omitted by Parliament. Therefore, the protection under Article 31-C was rendered nugatory.

Whereas, in respect of Article 39(b), the appellants argued that it requires that there must not only be a “material resource”, but such resource must also be “of the community”. If the material cannot be traced to the community, it cannot be the subject of the policy. It was further argued that the interpretation of private property given by Justice Krishna Iyer in his separate opinion in Ranganatha Reddy case²⁷ which was subsequently followed by the 5-Judge Bench in Sanjeev Coke case²⁸, is too wide. Merely because a privately owned resource meets the qualifier of “material needs” does not make it a material resource of the community. It was further argued that the phrase, “material resources of the community”, refers to resources which produce goods or services for the community or be “capable of producing wealth for the community”. While dilapidated buildings in Mumbai may fall within the ambit of resources, they cannot constitute “material resources of the community”. It was further argued that the decision in Sanjeev Coke case²⁹ is not good law, as it relied upon the minority opinion in Ranganatha Reddy case³⁰.

Contentions raised by the respondents

With respect to the first issue, the respondents argued that once an amendment is set aside, the entire effect of the amendment is invalidated and thus the position as it stood prior to the amendment must stand revived. The respondents relied on the decision in Supreme Court Advocates-on-Record Assn. v. Union of India³¹ (NJAC decision) where, a Bench comprising 5 Judges, held that when a constitutional amendment is struck down, the position that existed prior to the amendment stands revived.

In respect of the second issue, the respondents argued that the interpretation that Article 39(b) includes privately owned resources, has been a consistent position of law in various decisions of the Supreme Court. It was further argued that ownership and control of public resources would not be required to be secured and therefore, it is only private property that is required to be “secured” for the purposes of ownership and control. The terms “ownership” and “control” have to be read disjunctively as there may be situations where the State does not acquire ownership but only acquires control. Article 39(b) leaves it entirely to the wisdom of the legislature to decide what should constitute “material resources”. Furthermore, the deletion of right to property as a fundamental right under Articles 31 and 19(1)(f), also points towards the inclusion of private property within the ambit of “material resources of the community” under Article 39(b).

Majority view

Whether Article 31-C survives

The majority relied upon NJAC decision³² and other judgments of Constitution Benches and held that if an amendment is invalidated because it violates the basic structure, the logical corollary to that is that the unamended provision would stand revived. It was further held that to give effect to the repealing portions of Section 4 of the 42nd Amendment while also invalidating the enactment would not result in a return to a constitutional text that is in conformity with the basic structure, it would result in a third novel outcome, which may violate the basic structure. Therefore, the majority comprising of 7 Judges held that Article 31-C as it stood after the decision in Kesavananda Bharati case³³ remains in force.

Whether privately owned resources are included under Article 39(b)

The majority held that in absence of disagreement by a majority of Judges, any subsequent Bench having lesser or coequal strength from relying upon the observations made in a concurring opinion on behalf of minority of Judges which are not discussed by the majority at all. It was further observed that the majority judgment in Ranganatha Reddy case³⁴ refrained from making observations with respect to Article 39(b) and also indicated that they must not be understood to agree with the observations in the judgment of Justice Krishna Iyer. Therefore, the majority of Judges in Ranganatha Reddy case³⁵ did not adopt Justice Krishna Iyer’s view on Article 39(b) and therefore, the Bench in Sanjeev Coke case³⁶ erred in relying upon the minority opinion followed in Ranganatha Reddy case³⁷.

The majority noted two broad aspects arising out of Ranganatha Reddy case³⁸ and Sanjeev Coke case³⁹, firstly the phrase “material resources of the community” includes privately owned resources and secondly nationalisation or vesting of these private resources in the State falls within the expression “distribution” and subserves common good.

The Court then referred to the Debates of the Constituent Assembly with respect to the text of Article 39(b). It was observed that:

(i) Directive principles were intended to be instructions or guiding principles to the executive and the legislature. It was believed that the values enshrined therein would help the public in holding the Government accountable at the time of elections.

(ii) Dr Ambedkar did not wish to bind India to one social or economic structure. He believed that future generations would identify the socio-economic structure which best suits the needs of society, and the provisions of directive principles were wide enough to accommodate the same.

It was therefore held that Dr Ambedkar’s views cannot be interpreted to say that Article 39(b) encompasses all privately owned resources and that any legislation to convert private ownership to public ownership would fall within its ambit.

The Court then analysed the opinion of Justice Krishna Iyer in Ranganatha Reddy case⁴⁰ and the decision in Sanjeev Coke case⁴¹ and summarised the conclusions as follows:

(i) Purpose behind Article 39(b) is to allow economic restructuring and prevention of concentration of wealth.

(ii) The phrase “material resources of the community” includes all resources which are capable of producing wealth. Resources of an individual are the resources of the community and thus, privately owned property is covered by the phrase.

(iii) “Distribution” must be given a wide interpretation so as to include acquisition of privately owned resources by the State.

The majority held that this interpretation only satisfies one of three requirements of the phrase “material resources of the community” that is the property in question must be a resource. It ignores the qualifiers that they must meet, that is “material” and “of the community”. It was held that the use of the words “of the community” signifies the specific intention to include some privately owned resources. It was further held that the said interpretation was incompatible with Article 300-A (right to property) which is a constitutional right. However, there is no bar on the inclusion of private property as a class and if a privately owned resource meets the qualifiers of being a “material resource” and “of the community”, it may fall within the net of the provision. The Bench then laid down the following factors to determine whether a privately owned resource falls within the ambit of Article 39(b):

(i) nature of the resource and its inherent characteristics;

(ii) impact of the resource on the well-being of the community;

(iii) scarcity of the resource; and

(iv) consequences of concentration of such a resource in the hands of a few.

The majority, however, agreed with the wide interpretation given to the term “distribution”. It was held that various forms of distribution which can be adopted by the State cannot be exhaustively detailed. It was held that there is no Bar on the mode of distribution so long as the benefits percolate to the people as common good. In some cases, vesting of the resource in the State may serve the common good while in other cases, a resource may be distributed amongst private players to achieve this purpose.

Minority views

Justice Nagarathna’s view

In her opinion, Justice Nagarathna concurred with the majority’s opinion on both aspects. However, she criticised the Chief Justice for certain unwarranted remarks made by him on Justice Krishna Iyer and Justice Chinappa Reddy for the views taken by them in Ranganatha Reddy case⁴² and Sanjeev Coke case⁴³ respectively. Justice Nagarathna held that the Bench in Sanjeev Coke case⁴⁴ independently upheld the Coking Coal Mines (Nationalisation) Act, 1972⁴⁵ which was challenged therein, and reference were made to Justice Iyer’s opinion in Ranganatha Reddy case⁴⁶ and the majority view in Minerva Mills case⁴⁷. Both the judgments upheld the respective Nationalisation Acts; therefore, it cannot be held that the Bench in Sanjeev Coke case⁴⁸ “violated judicial discipline”.

Justice Nagarathna agreed with the majority’s conclusion that only some privately owned resources would fall within the scope of “material resources of the community” and not all. However, she added that privately owned resources except “personal effects” of an individual can come within the scope of “material resources of the community” provided that such resources get transformed as “resources of the community”. She held that the transformation can be done by: (i) acquisition; (ii) nationalisation; (iii) vesting of resource in the State by operation of law; and (iv) donation/gift/endowment/grant/dedication by the owner of the resource. In addition to the test laid down to answer whether a particular privately owned resource falls within the ambit of Article 39(b), Justice Nagarathna opined that privately owned resources are not straightaway distributed or handed over to other private persons by the State. First of all, private resource becomes “resource of the community” through methods adopted by the State, such as vesting, acquisition, etc. and once they become resources vested in the State they get transformed as “material resources of the community”. Material resources which are privately owned or controlled by private persons cannot straightaway be construed to be “material resources of the community”.

It was further held that mere vesting of a private resource in the State without anything further would not constitute “distribution” in all cases unless the policy of State determines whether such resources have to remain under the ownership and control of the State. Vesting or nationalisation of a private resource in the State is only compliance with the conditions precedent under Article 300-A of the Constitution.⁴⁹ It is up to the State to decide whether to retain the ownership and control of a resource or to actually distribute it to the public or only to certain eligible persons by way of lease, assignment, allotment, etc.

Justice Dhulia’s view

Justice Dhulia concurred with the view taken by the majority vis-à-vis Article 31-C. However, he dissented with the view taken in respect of the interpretation of “material resources of community” under Article 39(b). Justice Dhulia opined that the majority view holds that not all privately owned resources are material resources of the community and further limits the power of legislature to a non-exhaustive list of factors to determine which resources can be considered as “material resources”. He opined that there was no need for such pre-emptive determination.

Justice Dhulia opined that the purpose of not elaborating “material resources of the community” was not to restrict its meaning but to leave it to the legislature to include any material resource which would subserve common good. He opined that the choice of words “material resources” instead of “natural resources” is also significant.

Justice Dhulia opined that even before the decision in Ranganatha Reddy case⁵⁰, there was a presumption that all privately owned resources fall within the ambit of “material resources of the community” therefore, holding otherwise would upset the long-settled meaning given to the phrase consistently in several judgments by the Supreme Court.

Justice Dhulia observed that the minority opinion in Ranganatha Reddy case⁵¹ does not fall under Article 145(5) as a dissenting judgment. He further observed that the majority in Ranganatha Reddy case⁵² did not disagree with Justice Krishan Iyer’s opinion, it was merely said that “We must not be understood to agree with all that he has said in his judgment in this regard.” It was further opined that in cases where a minority of Judges has given a decision on a point on which the majority has remained silent, such opinion would be binding on all the courts in India and for the Supreme Court it would have at least persuasive value. Therefore, he opined that the 5-Judge Bench in Sanjeev Coke case⁵³ was persuaded by the opinion of Justice Krishna Iyer and there was no violation of judicial discipline for the reason that the Bench did not go against the law laid down by the majority in Ranganatha Reddy case⁵⁴ but only adopted the logic of the 3 Judges on which the majority therein was silent.

Conclusion

This judgment clarifies the scope of Article 39(b) and the State’s power to acquire privately owned resources. The Court reiterates the flexibility in terms of economic ideology as envisaged by the Constituent Assembly. It reiterates the aim of the Constituent Assembly to achieve socio-economic equality in a country that was and is still struggling with a vast income gap. It provides a non-exhaustive list to test a legislation purporting to be protected by Article 31-C. The test laid down by the majority of 7 Judges, makes it easier to determine whether and how the State can acquire and distribute a privately owned resource with a view to subserve common good. The majority has held that there is no fixed way of distributing a resource as long as the benefits percolate to the lowest strata of society and the same would be up to the legislature to determine.

Overall, this judgment is a significant development in the Constitutional Jurisprudence of India, clarifying the relationship between an individual’s right to property and the State’s power to acquire ownership and/or control of such property in furtherance of the socio-economic directive envisaged in Article 39(b) of the Constitution.