Reading the majority opinion in the ‘material resources of the community’ case

IN his last week in office, the former Chief Justice of India (CJI) Dr D.Y. Chandrachud delivered the majority opinion in Property Owners Association versus State of Maharashtra on behalf of seven out of nine judges.

The nine-judge Constitution Bench was deciding two major issues— (i) Whether Article 31C survives in the Constitution in the aftermath of an amendment replacing the reference to Article 39(b) and (c) with the entire Part IV of the Constitution, and the subsequent adjudication of the above amendment as being unconstitutional in Minerva Mills; and, (ii) Whether the interpretation of ‘material resources of the community’ in Article 39(b), as adopted by Justice Krishna Iyer in Ranganath Reddy, and followed in Sanjeev Coke, which includes resources that are owned privately and not by the State within the ambit of the phrase, should be reconsidered?

In a nutshell, the majority held that (i) Article 31C as upheld in Kesavananda Bharati survives; and that (ii) although the phrase ‘material resources of the community’ includes privately owned resources ‘theoretically’, not every resource owned privately can be considered to be a material resource of the community, and that such determination had to be made ad hoc, must be context-specific and subject to a non-exhaustive list of factors.

This article is limited in scope to the second issue and makes a two-pronged argument against the correctness of this judgment. First, it attempts to trace the history of constitutional practice relating to the subject matter, arguing that the Bench ignored the socio-temporal and economic backdrop thereof.

Second, it looks at the method of interpretation adopted and argues that it is a case of judicial overreach in the realms of economic policy, and imposes restrictive transaction costs on what are arguably much-required economic reforms.

Cementing perestroika: Is it a recency bias?

The line of cases from Sankari Prasad to Kesavananda Bharati, and the entire dispute on amending powers, judicial review and the right to property can be narrowed down to one, ‘basic structure’ question: Whether the Constitution of India permits the State to nationalise private property?

On the face of it, it is clear that the unamended Constitution recognised property as a fundamental right under Article 19, and hence any originalist reading will say otherwise.

Reference to the Constituent Assembly debates regarding the corresponding draft Article 31(ii) too points out in a similar direction— when Dr B.R. Ambedkar objected to an amendment suggested by Prof. K.T. Shah suggesting that ‘material resources of the community’ be qualified, clarifying that this phrase did not include private property on grounds of being unnecessary, since it made no change to the position of law.

However, the constitutional practice in India since before the election of the first parliament suggests a different direction. The First Amendment to the Constitution was, in all fairness, passed to make the Constitution more ‘workable’ for the State, inter alia adding restrictions on free speech, amending the equality clause to allow for reservations, and protecting land reform laws from being struck down.

Similar amendments were required in the Constitution to allow for the abolition of zamindari by various states, the abolition of privy purses of the rulers of Princely States, and the nationalisation of banks and other industries.

It is noteworthy that these amendments were passed in furtherance of, and to validate, judicial rulings invalidating State action, and were subject to post-facto judicial scrutiny. This exchange between the legislative and judicial branches led to the settlement of the broader questions of law— the legislature can amend any part of the Constitution save interfering with the basic structure thereof, and the judiciary can review such amendments on several grounds, including legislative competence, Part III of the Constitution (fundamental rights) enquiry, and conflict with the basic structure of the Constitution.

In the first thirty-five years, the Union government took control of companies operating in railways, industries, banking, insurance, mining of coal and other important minerals, oil and natural gas, airlines, road transport, ports, shipbuilding, etc., and states passed land reform laws to abolish zamindaris, place land ceilings, and regulate tenancy rights.

Several of these issues came up before the courts and were dealt with in judgments, including the broader, law-heavy challenges in Kesavananda Bharati and Minerva Mills, or the more specific challenges in Ranganath Reddy and Sanjeev Coke.

While the decisions in some cases went against the nationalisation exercise, the common thread that runs through all these judgments is that the courts have, on first principles, not disputed the permissibility of the exercise of nationalisation, or the wisdom of the legislature to determine the necessity thereof.

The only successful challenges have been those in which such an exercise failed to comply with procedure or have gone beyond the scope of the executive and legislative powers.

Similarly, in the wake of the economic crisis of 1991, the First Gulf War, and the collapse of the bipolar global order, the government decided to (or, was rather forced to) implement the Indian version of perestroika— popular as the liberalisation, privatisation and globalisation (LPG) reform.

The Indian economy was opened up to foreign investment, public sector companies underwent disinvestment, and the licensing regime was abolished— without requiring any amendment to the Constitution, or any major legal challenges thereto.

Therefore, it was the workability of the Indian Constitution that allowed the government to make decisions and frame policies deemed necessary for managing the economic situation of the country and promoting growth.

It was through the Union budget, and the consequent Finance Act— which were executive and legislative exercises— that the government was able to make changes in the economic policy of the country.

This judgment, by interpreting Article 39(b) in this manner, imposes an additional burden on the State to demonstrate (when the challenge before the court arises) that the given sector or the industry falls under ‘material resources of the community’, which, in the court’s words, is “subject to a non-exhaustive list of factors such as the nature of the resource and its characteristics; the impact of the resource on the well-being of the community; the scarcity of the resource; and the consequences of such a resource being concentrated in the hands of private players”.

Hypothetically, if the State tomorrow decides to move back to a different economic model, this judgment has the potential of coming in the way. It leaves it to judicial determination which resources can be subject to an exercise of nationalisation, and it is doubtful if industries such as insurance, banking, telecom and airlines, which are today excessively privatised, can be brought back to the position by the State even if it seems necessary for public interest to the legislative, executive and popular will.

Although the judgment is not a prohibition, it clearly stems from a position that private property is somehow sacrosanct, and nationalisation or State acquisition of resources is an unwanted, to-be-avoided eventuality.

This position arises out of historical amnesia regarding the conditions where the State policy required control over the market and a presumption that the rights-based model of property is central to the basic structure— thereby placing judicial limitations on the Left-Right political spectrum.

Judicial overreach in the political economy

A Constitution is not a document of rigidity to the text but one of posterity, or at least is intended to be such. It lays down the ground rules for the day-to-day operation of the State, and the limitations thereon, allowing the State to operate within the sphere allocated thereto.

This is best demonstrated by the First Amendment to the Constitution, where the same set of people who signed the Constitution decided to make amendments to several positions when they realised the unworkability of those provisions even before all the provisions were meaningfully put to work (the First Amendment was passed before the first parliament was elected).

At the root of it, a democracy is a majoritarian system if left unchecked. Elections can be won by inciting the majority against the minority, and this has significant costs— including hate speech, discriminatory legislative and executive action, and a resultant denial of civil rights for the purposes of appeasing the majority sentiment.

The members of the judiciary being free from electoral requirements, are supposed to intervene in the defence of the marginalised voice and their right to exist as free and equal residents of the State. 

It is settled law otherwise that except in such cases where civil rights are in question, the courts shall not interfere in the matters of policy in general, and economic policy in particular, when it comes to the judicial review of statutory law (see R.K. Garg versus Union of India, New Orleans versus Dukes).

In a separation of powers model, this is imperative because the crossing of this line would essentially denude the legislature of their powers to govern and implement the popular mandate. This also comes in the teeth of the rationale behind the accountability framework, where the members of the legislature face their electorate periodically.

The legislature, while exercising its powers— including while amending the Constitution— decides after deliberations keeping in mind the need of the hour and the impact of the proposed measure.

The role of the judiciary is to merely check the legality of the action on a post-facto basis when a challenge comes before it. Placing a restriction on the scope of legislation through an interpretation of a provision, of a nature that (i) has no bearing on the civil rights of the people, (ii) is not related to the federal structure, fiscal or otherwise; and (iii) goes contrary to established line of precedent which has otherwise interpreted the provision without such restriction— is undesirable, to say the least, and arguably violative of settled positions of laws of separation of powers, i.e. judicial overreach.

The reading of Article 39(b) where private property would have been categorically excluded would have rendered Article 31C obsolete.

Au contraire, the reading where private property is included in ‘material resources of the community’, as done by the three judges in Ranganath Reddy and followed in Sanjeev Coke, would have made no difference to the position, keeping 31C and 39(b) operative in consonance as it used to be.

However, the creative reading by CJI Chandrachud (as he then was) has created a situation where, although private property is ‘theoretically’ included in ‘material resources of the community’, it places restrictions by making the leap from this theoretical to actual recognition a subject of judicial decision for future Benches.

This interpretation creates unnecessary uncertainty in the law, where the legislature is faced with restrictive transaction costs. Further, the decision makes a leap of logic, by characterising the Krishna Iyer doctrine (the interpretation based on Marxist ideals— of all property, including both the means of production and the resultant produce being the material resources of the community) as “postulating a rigid economic theory (...) as the exclusive basis for constitutional governance”.

The interpretation applied to Article 39(b), which remains unenforceable per se, and hence cannot be an “exclusive basis for constitutional governance”. It merely gives the Parliament the scope to use the exception provided in Article 31C to nationalise when and if it is deemed necessary.

The present judgment restricts the scope by making the identification of such resource as to be nationalised a question of judicial determination, thereby going closer to postulating a rigid economic theory of making privatisation the norm (because there is little to no justiciability of disinvestments or similar exercises) and nationalisation the exception.

The theoretical acceptance of private property as material resources, while simultaneously interpreting it in a manner that severely limits the scope thereof, violates the living tree model of the Constitution.

Further, the fact that this is a nine-judge Bench ruling means that this is going to remain the position of law for a long time to come— until the leaps of logic become apparent to future Benches who refer it and come to restore the position of law— or the Krishna Iyer doctrine, as it has been called.