Not every private property can be acquired by state, rules Supreme Court

A nine-judge constitution bench of the Supreme Court on Tuesday ruled that the state can't classify every privately owned property as a “material resource of the community”.

The 8:1 decision means that the state cannot take over private property solely to distribute for community welfare.

The majority opinion, authored by Chief Justice of India (CJI) D.Y. Chandrachud, clarified that the Directive Principles of State Policy (DPSP) under Article 39(b) of the Constitution, which mandates the state distribute resources equitably, cannot be applied to all privately owned properties.

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Article 39(b) states that the government should direct its policies to ensure the ownership and control of community resources are distributed for the common good.

The other eight members of the bench were justices Hrishikesh Roy, B.V. Nagarathna, Sudhanshu Dhulia, J.B. Pardiwala, Manoj Misra, Rajesh Bindal, Satish Chandra Sharma, and Augustine George Masih.

While Justice Dhulia was the lone dissenter, Justice Nagarathna registered partial dissent.

Previous judgements

The landmark ruling rejected previous judgments, particularly Justice Krishna Iyer's minority ruling in the Ranganath Reddy case, which suggested that privately owned resources could be considered material resources of the community.

The apex court clarified that the notion of “material resources of the community” cannot be broadly interpreted to include all privately owned properties simply because they serve individual needs.

The CJI criticized Justice Iyer’s ruling, noting that it reflected a specific ideological perspective.

He emphasized that the classification of a resource as a “material resource” should depend on its nature, characteristics, community impact, scarcity, and the implications of its concentration in private hands.

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The country's top court also highlighted that the framers of the Constitution did not intend India to adhere to any specific economic doctrine.

The CJI authored the majority ruling.

The note of dissent

Justice Nagarathna wrote a separate judgment agreeing with the majority’s conclusion but dissenting on the criticism of the earlier judgments that affirmed private property as material wealth.

According to Nagarathna, judges like Justice Krishna Iyer, who authored those judgments, were products of their time and circumstances and should not be condemned for their interpretations.

“Justice Krishna Iyer adjudicated on material resources of a community in the backdrop of a constitutional and economic structure that gave primacy to the state in a broad manner. The 42nd Amendment had included socialism in the Constitution. Can we castigate former judges and allege they did a disservice only because they reached a different interpretive outcome," asked Justice Nagarathna.

"It is concerning how judicial brethren of the future may view past judges, possibly losing sight of the context in which they served and the socio-economic policies pursued by the state,” she added.

She said the paradigm shift after the 1991 reforms does not justify branding earlier judges as having done a disservice to the Constitution. "Such observations from this court calling them untrue to their oath of office cannot be accepted”, and future judges should not adopt this practice.

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She opined that material resources can be divided into two categories: State-owned and privately owned.

She argued that privately owned resources, such as essential items like furniture and kitchen tools, can be transformed into material resources for the community.

She outlined five ways of turning private resources into community material resources: (1) nationalization, (2) acquisition, (3) operation of law, (4) purchase by the state, and (5) donation by the owner.

Justice Sudhanshu Dhulia, on the other hand, wrote a dissenting judgment, affirming the view held by previous judges that private property can be classified under material wealth.

However, the judgment reaffirmed that Article 31C, which relates to the directive principles, remains valid, as previously upheld in the landmark Kesavananda Bharati case.

The case file

The case dates back to 1992 and was referred to a nine-judge bench in 2002, reflecting a prolonged deliberation over whether privately owned resources should be included in the definition of “material resources of the community” under Article 39(b).

The petitioners argued that “material resources” should encompass any resource capable of generating wealth for the community’s benefit.

They contended that if the law intended to include private properties, the language would have explicitly reflected that to prevent misinterpretation.

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The government maintained that the interpretation of Article 39(b) should consider evolving constitutional principles rather than fixed ideologies, arguing that a resource represents a community’s dynamic economic interactions and contributions.

The judgement comes against the backdrop of rising income inequality in the country. According to experts, the ruling doesn't completely bar the government from making policy on wealth distribution. However, it restricts its powers.

“It appears that the ruling does not completely block the government from implementing wealth redistribution policies but narrows the interpretation of ‘material resources of the community’ under Article 39(b),” said Gauhar Mirza, partner at law firm Cyril Amarchand Mangaldas.

"The Supreme Court’s emphasis on private property rights signals a shift from nationalistic policies to a market-oriented approach that values ownership and investment security," Mirza added. 

Income inequality in India has surged since the early 2000s, with the top one per cent’s share of income reaching 22.6% and wealth reaching 40.1% in 2022-23, according to a working paper titled Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj.

Authored by Thomas Piketty, Lucas Chancel, and Nitin Kumar Bharti, the paper highlights a significant increase in wealth concentration between 2014-15 and 2022-23. By 2022-23, India’s top one per cent income share is among the highest globally, surpassing that of South Africa, Brazil, and the US.