Not all private property can be material resource of community: Supreme Court

A nine-judge bench of the Supreme Court, in a majority judgment, ruled that not all privately owned property of citizens can be acquired by the state but only those that are ‘material for the community’ depending on the nature and impact of such a resource and whether its distribution subserves public good.
Out of the nine-judge bench led by Chief Justice of India (CJI) Dhananjaya Y Chandrachud, seven judges held the majority view while deciding on a clutch of petitions that questioned the state’s power to acquire privately-owned property by citing the directive principle of state policy under Article 39(b) of the Constitution which says, “state shall direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.”
The majority ruling said, “Whether material resource under Article 39(b) includes privately-owned resources, the answer is theoretically yes as it may include private resources. But not every resource owned by the individual can be considered as a material resource”.
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The view, also agreed to by justices Hrishikesh Roy, JB Pardiwala, Manoj Misra, Rajesh Bindal, SC Sharma and Augustine George Masih, however added riders by saying, “The enquiry whether a resource falls under Article 39(b) will depend on the nature of the resource, impact of the resource on the community and consequence of the resource being concentrated in few hands.”
Further, the bench said that the term “distribution” has a wide connotation, and the court must determine whether distribution of resources in a given case subserves common good.
The court was listening to petitions by property owners association of Mumbai to Chapter VIII-A of the Maharashtra Housing and Area Development Act (MHADA), introduced in 1986, which allows the state to acquire Mumbai’s old, dilapidated buildings termed as “cessed properties” in favour of cooperative societies of occupiers. This amendment contained a declaration that the Act seeks to give effect to the state policy for securing the objective specified in Article 39(b) of the Constitution.
The state claimed that “housing stock” is a material resource of the community and the reconstruction of the building is for the common good as the old buildings are unsafe. MHAD authority (MHADA) also argued that the owners of the buildings have refused to effect repairs on account of the freezing of rents from September 1, 1940, due to which they get very little rent which is less than the taxes they have to pay on these properties.
However, the property owners have opposed the state’s move by arguing that Article 39(b) cannot envisage private-owned property. They have even challenged the Maharashtra Rent Control Act for fixing abysmally low standard rent. MHADA argued that 39(b) should be given the widest possible meaning to include private property as well.
The uncertainty in law arose due to an interpretation of a 7-judge bench decision of the top court in State of Karnataka v Ranganatha Reddy (1977) which considered the application of Article 39(b) in the context of nationalisation of contract carriages.
The majority view did not favour private property to fall under Article 39(b). However, the minority view of 3 judges pronounced by justice (retd) VR Krishna Iyer held to the contrary. This minority view became the basis of a five-judge bench in Sanjeev Coke case (1982) where the issue of Article 39(b) arose in the context of nationalisation of coke oven plants and private property was held to be part of material resources of community.
The CJI-led majority ruling held that the view expressed by justice Iyer and justice Chinnappa Reddy in Sanjeev Coke erred as it failed to distinguish that material resource is of the community and not of the state.
It said, “To declare Article 39(b) includes distribution of all resources follows an economic ideology…justice Iyer was guided by a particular (socialist) school of thought.”
Further justice Reddy’s interpretation of Article 39(b) was rooted “in a particular economic ideology and ideological structure” that prioritised distribution of public wealth.
The bench said that the framers of our Constitution never intended economic democracy to be tied to any particular social structure or ideology but for the welfare of society.
“This has allowed the government to pursue economic reforms,” said the bench, as it traced the trajectory of economic growth that was initially a mixed economy and later evolved with liberalisation and market-based reforms by inviting private investment. It said that by including all resources as material resources would “undermine the fabric” of the economy.
The two opinions of dissent were penned by justices BV Nagarathna and Sudhanshu Dhulia who said that the earlier views of justice Iyer and justice Reddy in Chinappa Reddy could not be faulted as criticism of earlier judges, or the judgments based on their thought process is not good for posterity.
Justice Dhulia shared the view that all resources except those with “personal effect” will be material resource under Article 39(b).
Justice Nagarathna further qualified by saying, material resource cannot include articles of daily need of an individual or a tangible property having intimate relation with the individual.
On a related issue of whether laws passed for giving effect to Article 39(b) enjoys constitutional immunity under Article 31C, the nine-judge bench was unanimous that such a protection will be available.
Article 31C was introduced by the Constitution (Twenty-fifth Amendment) Act, 1971 giving a “safe harbour” or protective umbrella to any law giving effect to the policy of the state towards securing the principles of Article 39(b) if it is inconsistent with or takes away any rights conferred by Articles 14 and 19 relating to equality and fundamental freedoms.
The core protection of this provision was upheld by the 13-judge bench landmark decision in Kesavananda Bharati case (1973), famous for laying down the basic structure doctrine. The court had untouched 31C protection to laws furthering the objective of Article 39(b) but struck down that part which barred judicial review of such laws.
Later, by the Constitution (Forty-second Amendment) Act, 1976, the scope of protection offered under Article 31C was extended not only to Articles 39(b) and (c), but all directive principles of state policy (DPSP), meaning thereby that any law based on DPSP violating Articles 14 and 19 could not be challenged in courts. By a later judgment in Minerva Mills the amendment to Article 31C was struck down.
The present nine-judge bench held that the unamended 31C as it existed prior to the amendment will continue in force.
At the heart of the current controversy was the interpretation of Article 39(b) of the Constitution. It is one of the directive principles of state policy (DPSP) which says, “state shall direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.”
To be sure, various laws relating to Article 39(b) that have travelled in the past to the top court related to natural or public resources such as land, mines, forest, electricity, coke oven plants, sick textile industry, contract carriages, excise duty, natural gas, etc. However, this was the first time the court was confronted with an issue on housing and building belonging to urban landlords, considered so germane to private citizens, in the present challenge under Article 39(b) heard by the nine judges.
The Constitution bench’s adjudication had garnered significant attention following an intense political discourse just before the conduct of the Lok Sabha elections earlier this year.
The catalyst for this renewed focus was a speech delivered by Prime Minister Narendra Modi on April 21, wherein he accused the Congress party of advocating for the redistribution of common citizens’ wealth if elected to power.
This assertion was based on an earlier address by Congress leader Rahul Gandhi on April 20, where he proposed conducting a comprehensive caste survey to determine the demographics and socio-economic status of various communities, including backward classes, SCs, STs, minorities, and others. Gandhi further outlined plans for subsequent distribution of wealth, job opportunities, and welfare schemes based on these findings. While these political statements might seem disconnected from the legal proceedings, they spurred public interest in the case being heard by the Supreme Court.