Explained: How a new Supreme Court ruling curtails government’s rights to acquire private property

A nine-judge Constitution Bench of the Supreme Court delivered a landmark ruling on Tuesday that restricted the powers of the state to acquire private property.

The ruling addressed the contentious question of whether private property could be targetted for acquisition and redistribution by the state. The judgement provided parameters for the exercise of the eminent domain power – the authority of the state to compulsorily acquire private property for public use, provided fair compensation is given to the owner.

The ruling is significant for property rights in India. It affirms that the government cannot broadly claim private property as “material resources” without considering its communal value and impact. This decision marks a shift from earlier interpretations, where the state had wider leeway to acquire private property under the guise of public good.

The judgement balances the Directive Principles with the need to respect private property rights. It reflects India’s shift towards a liberalised economy that fosters private enterprise while acknowledging the state’s role in ensuring social welfare. The Supreme Court’s case-by-case approach signals that future policies involving private property must meet rigorous constitutional scrutiny.

The judgement carries immense implications. It may shape legislative efforts related to property acquisition and social welfare. It might influence how political parties approach economic reforms and property rights in elections.

The decision underscores that any state action involving private property must carefully balance public interest and individual rights.

The matter began with challenges to Chapter VIIIA of the Maharashtra Housing and Area Development Act, 1976, amended in 1986. The provision allowed the Mumbai Building Repair and Reconstruction Board to acquire cessed properties with the consent of 70% of residents for restoration and distribution to “needy persons” and “occupiers”. The Property Owners’ Association, representing over 20,000 landowners, contested this, arguing that it violated their constitutional rights.

The Bombay High Court rejected their claims, citing Article 31C of the Constitution. Article 31C protects laws enacted in furtherance of Article 39(b) of the Constitution from being invalidated for violating the fundamental rights to equality and freedom guaranteed by the Constitution. In turn, Article 39(b) is part of the Directive Principles of State Policy in the Constitution. It directs the state to ensure that the ownership and control of community property is distributed in a way that serves the common good.

The case then reached the Supreme Court. The court was asked to define the limits of “material resources” in this context. The term, used in Article 39(b) refers to assets, including natural and man-made resources, intended for distribution or use in a manner that benefits the public and serves the common good. In some judgements, courts had held that this could encompass only state-owned resources. In other judicial interpretations, privately held resources were held to be part of “material resources” too if they significantly impact public welfare.

Initially heard by a three-judge bench in 1996, the matter was referred to a five-judge bench and subsequently to a seven-judge bench in 2001. Finally, it was brought before a nine-judge bench in 2002. The judgement was delivered with an 8:1 majority. Chief Justice of India DY Chandrachud authored the main opinion for himself and Justices Hrishikesh Roy, J.B. Pardiwala, Manoj Misra, Rajesh Bindal, Satish Chandra Sharma and Augustine George Masih. Justice B.V. Nagarathna partially agreed with this in a concurring opinion, while Justice Sudhanshu Dhulia wrote a dissenting opinion.

Majority verdict

The majority opinion held that not all private property could be considered “material resources of the community” under Article 39(b) Chandrachud reasoned that an expansive interpretation, advocating state control over all private resources, echoed an outdated “rigid economic dogma”. He said that India’s economy had evolved from being state-controlled to a mixed economy, incorporating both public and private investments.

The ruling distinguished between resources essential for public welfare and those that do not meet this criterion. Chandrachud held that determining whether a private asset qualifies as a “material resource” must be done on a case-by-case basis. Factors to consider include the resource’s inherent value, its impact on public welfare and the consequences of concentrated private ownership.

Chandrachud also confirmed that Article 31C, as upheld by a 13-judge bench of the court in its landmark Kesavananda Bharati verdict in 1973, protects laws implementing Article 39(b) and (c) of the Constitution. However, he emphasised that such laws must still adhere to constitutional guarantees, including those under Article 14 (right to equality) and Article 300A (right to property). Both Nagarathna and Dhulia agreed on this point with him.

Nagarathna’s partial concurrence

Nagarathna agreed that some private resources could theoretically fall under “material resources” if they serve public welfare. However, she stressed that personal belongings and everyday assets should be exempt.

Nagarathna, however, differed from Chandrachud on his approach towards past judicial interpretations. She argued that his characterisation of some previous court judgments as biased towards a single economic ideology was unfair. She stated that these judgments reflected the socio-economic challenges and policies of their times.

Nagarathna emphasised that prior judges, such as Justice VR Krishna Iyer, should not be viewed as undermining the Constitution. Instead, their interpretations should be seen in the context of the era’s vision and needs.

Dhulia’s dissent

Dhulia’s lone dissent held that excluding private property from Article 39(b) overlooked the potential benefits of equitable distribution of certain private resources. He warned that a strict exclusion could undermine the Directive Principles’ goals, particularly in light of persistent economic disparities.

He viewed private resources as part of the “material resources” necessary for achieving social and economic justice. Unlike Chandrachud, who placed specific boundaries on how and when private property can be considered community resources, Dhulia held that these resources should always be viewed broadly to support redistribution for the common good.

Dhulia also called Chandrachud’s critique of Krishna Iyer “harsh” and cautioned against demeaning past judges' contributions.

Historical context

The debate over balancing fundamental rights and Directive Principles has a long history. Article 31C, introduced through the 25th Constitutional Amendment in 1971, sought to protect laws made under Article 39(b) and (c) from constitutional challenges based on the fundamental rights to equality and freedoms.

This provision was reviewed in the Kesavananda Bharati case, where it was partially upheld. The court had ruled that while Article 31C’s bar on judicial review was unconstitutional, protecting laws under Articles 39(b) and (c) was valid. The Supreme Court reinforced this stance in its Minerva Mills judgement in 1980, asserting that fundamental rights form the “basic structure” of the Constitution.

Tuesday’s judgement revisited this complex interplay, maintaining that while Article 31C shields specific laws from certain challenges, judicial oversight remains crucial to prevent misuse.