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Not all private property is ‘material resource of community’ for redistribution: Unpacking the SC verdict

Explained | Polity | Mains Paper 2: Indian Constitution - historical underpinnings, evolution, features, amendments, significant provisions and basic structure
Note4Students

From UPSC perspective, the following things are important :

Mains level: Private Property; DPSP;

Why in the News?

A  9-judge Constitution Bench of the Supreme Court, in a majority judgment (8:1), held that not every private resource can be considered a ‘material resource of the community’ to be used by the government to serve the ‘common good’ under Article 39(b).

  • This overturns the earlier interpretation formed in 1977 that has been followed by the Supreme Court till 1997.

What are Constitutional Provisions?

  • Part IV of the Constitution contains the Directive Principles of State Policy (DPSP) where government should strive to achieve social and economic justice in our society.
  • Article 39(b) in Part IV provides that ‘ownership and control of material resources of the community are so distributed as best to subserve the common good.’
  • Articles 19(1)(f) and 31 originally guaranteed right to property and compensation for acquisition as a Fundamental Right respectively.
    • Article 31C that was added through the 25th amendment in 1971, provided an exception that laws made to fulfil the principles under Articles 39(b) and (c) shall not be void on the ground that it violated Fundamental Rights including right to property.
  • In the Kesavananda Bharati case (1973), a 13-judge Bench of the Supreme Court upheld the validity of Article 31C but made it subject to judicial review.
  • In 1978, the right to property was omitted from Fundamental Rights and made a constitutional right under Article 300A.
    • Any law to acquire private property by the government should only be for a public purpose with adequate compensation meted out.

What were earlier judgments?

  • In the State of Karnataka vs. Ranganatha Reddy (1977) case, the Supreme Court upheld a law nationalizing private bus services, with Justice V.R. Krishna Iyer interpreting “material resource of the community” in Article 39(b) to include all national wealth.
  • This minority opinion influenced the Sanjeev Coke Manufacturing Company vs. Bharat Coking Coal Limited (1982) case, which also supported nationalization, and was referenced in Mafatlal Industries Limited vs. Union of India (1996).

What is the current ruling?

  • The SC recently ruled in the Property Owners Association vs. State of Maharashtra case that not all privately owned properties qualify as “material resources of the community” under Article 39(b).
  • A 9 judge bench, stated that only certain properties, based on their nature and impact on public welfare, can be considered for state acquisition to serve the common good.
  • This decision marks a shift from earlier interpretations that emphasized that individual property rights are protected and not every private asset can be appropriated by the state.
  • The ruling also noted that the term “distribution” in Article 39(b) includes both state acquisition and redistribution to private entities when it benefits the community.

What criteria should determine if a privately owned resource qualifies as a ‘material resource of the community’?

  • Purpose and Public Utility: Privately owned resources may be classified as “material resources of the community” if they are essential for societal welfare, addressing collective needs, or fulfilling significant public purposes, such as energy, water, or land critical for infrastructure.
  • Proportionality and Fairness: The court emphasized that any state action must be proportional, balancing public benefit with the impact on private owners.
  • Economic Impact and Control: Resources that substantially impact the national economy or are crucial for maintaining societal equity (such as natural resources) may be considered community resources, but this does not apply to general private property.

How does this ruling impact the balance between individual property rights and the state’s ability to intervene for public welfare?

  • This ruling reinforces individual property rights, clarifying that private property cannot be arbitrarily acquired under the guise of benefiting society. The state must justify the acquisition based on substantial, verifiable public welfare needs.
  • Limitations on State Power: By rejecting an expansive interpretation of Article 39(b), the court limits state power, ensuring that only properties directly tied to public interest and welfare fall under this category.

What are the potential economic implications of this ruling in India?

  • Investment Climate: This ruling strengthens protections for private property, likely improving investor confidence by assuring that property rights are safeguarded from excessive state intervention.
  • Economic Development and Social Equity: By narrowing the scope of Article 39(b), the ruling limits redistributive policies to sectors where public welfare is a clear priority, allowing economic resources to be distributed in a manner that considers social equity while respecting individual rights.
  • Real Estate and Industrial Sectors: The ruling could positively affect sectors with high-value assets, such as real estate and industry, as businesses will have greater certainty regarding property ownership and security.

How might this decision influence future legal interpretations and legislative actions?

  • Refined Scope for Article 39(b) Applications: Future legislation under Article 39(b) must specifically justify how resources qualify as “material resources of the community,” likely limiting nationalization or acquisition to specific, strategically important sectors.
  • Increased Judicial Scrutiny on Property Rights: Courts are likely to more critically evaluate state actions that aim to redistribute private property, requiring robust evidence of public interest and alignment with constitutional principles.
  • Potential for Policy Revisions: Laws that invoke Article 39(b) and related provisions may need to be reviewed to ensure they comply with this interpretation, leading to a more nuanced application of public welfare policies.

Way forward: 

  • Establish Clear Guidelines for Public Interest Acquisition: The government should define transparent criteria for categorizing “material resources of the community,” ensuring acquisitions serve substantial public welfare needs and align with societal priorities, especially in areas like infrastructure and essential services.
  • Strengthen Judicial and Legislative Safeguards: Introduce legal safeguards to protect individual property rights, allowing courts to rigorously assess state actions on property acquisition, ensuring proportionality, fairness, and adherence to constitutional principles.

Mains PYQ:

Q How did land reforms in some parts of the country help to improve the socio-economic conditions of marginal and small farmers? (UPSC IAS/2021)

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