With the Enforcement Directorate moving the Delhi High Court in appeal against the 2G verdict, the question of successfully prosecuting high-profile scams has been thrown open again. While in the coal-block scam, the courts pronounced a guilty verdict, the spectrum scam has been an en banc acquittal. Both involved the allocation of public resources to benefit private interests. Yet, the difference in the result points strongly to what the trial court misapplied in terms of law and misunderstood in terms of policy in the 2G trials.
In the spectrum scam, the First-Come-First-Serve (FCFS) policy faced the wrath of the apex court because it had been unjustly changed to benefit certain players. The “tweak” in the FCFS was through a change in the basis of allotment from the date of application to the date of payment of the entry fee. The Supreme Court (SC) held that this was arbitrary under Article 14 of the Constitution but held back on the substantive merit of the FCFS. Such “tweaks” are not uncommon. In CBI v. M/s Kamal Sponge Steel & Power Ltd, the court held that in the allocation of coal-blocks, reasonable precautions to preclude losses were not exercised. H C Gupta was convicted under the Prevention of Corruption Act (PoCA)1988 for his non-diligence which led to a loss of public money, and thereby public interest. Yet, in the spectrum trial, all the accused were given a carte blanche acquittal.
The prosecution did not concern itself with charges under PoCA in the spectrum trial. What was debated were charges of money laundering in tweaking the FCFS. For lack of damning evidence, the court held that the charges were not established beyond reasonable doubt. However, the court failed to appreciate that it was the burden of the accused to show that all the safeguards and precautions were exercised to ensure that there was no loss of public interest.
Before the current PoCA of 1988, the PoCA of 1947 defined criminal misconduct under Section 5(1)(d) as “corrupt”, “illegal”, or “abusive” practices used in public office. The 1988 Act changed the definition to the mere absence of a “public interest”. This reflected two important changes: The offence no longer required the element of mens rea or guilty intention; and the burden of proof was reversed onto the defendant if a detriment to public interest could be shown. Had the trial court concerned itself with PoCA, the accused would have had a tough time. A criminal trial is different from a writ challenge, yet it was at the heart of the spectrum scam to determine how the “erroneous” tweaking of the policy was itself a criminal misconduct.
The FCFS has been the Goliath of state policy in allocating natural resources. The policy underwent harsh scrutiny before the SC in the first spectrum case, where the question of its constitutionality was decided. The apex court in Reliance Natural Resources Ltd. v. Reliance Industries Ltd. evoked the Public Trust Doctrine to interpret Article 297 to hold that a just and proper compensation must be realised in exchange for the abrogation of the state’s sovereignty over public resources. Therefore, a broad contour of public interest was established in an equitable and just exchange. However, in the second spectrum case, the SC refused to universally denounce the FCFS, respecting the prerogative of the state to determine policy.
Any policy must be tenably based on a strategy to reach desired outcomes. The FCFS’s allocative channel is best suited to the “age of exploration” where, in order to incentivise discovery, the state granted the first mover advantage. Such was the original design behind the allocation of oil & gas-blocks, where the seeker would have to expend considerable resources in the discovery of the natural resource; or the case for Intellectual Property Rights to spur innovation.
The economics of demand and supply dictate that an equilibrium will best be found intrinsic to the system. The very fact that the competing players are far more than the slots available means that someone values the resources greater and would be willing to negotiate a better deal. In such circumstances, auctioning would lead to a fuller realisation of value for both the state and the players. A mere entry fee is inadequate to meet these standards of fair-play.
The purpose of allotting spectrum is to enable players to utilise the resource towards its end. The mandates of substantive criteria and entry fee exist specifically for the reason of determining the allottee’s capability of utilising the said resource. In the spectrum scam, such allotments were vitiated by subsequent transfers to non-allottees. The case was not of an undue economic hardship or a superlative model of production; it was the banal case of conduit players. This reduced the allocations under the FCFS to “sale-based” rather than “use-based”. The policy sought to reward initiative, but initiative was never taken and allotments were pushed ahead for pecuniary gain. The intention to work on the resource was absent. Such is the case in most public allocative channels wherein the garb of licencing, the natural resource is freely traded as a commodity. Spectrum, coal-blocks, industrial plots — all are effects to this cause.
Corruption in public allocative channels is a complex web of transactions. The fodder scam convictions show that the extent of participation ranges from the chief minister to a panchayat officer. When everyone in a system is complicit in the crime, it becomes impossible to prosecute under the regular jurisprudence of criminal law. A convenient “clerical error” or even a “tweak” in the policy is enough to be abused to benefit cronies. The en banc acquittal in the spectrum trial is the case of a poor understanding of how big-ticket corruption happens in the politico-corporate-bureaucratic nexus. Worse than that, it is the story of a crony capitalist FCFS and how it permeates state policy.
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