Supreme Court clarifies reservation policy for ship recycling plots: R.K. Industries vs. S.C./S.T. Shipbreakers Association (2019)

Date of the Judgment: July 16, 2019
Citation: 2019 INSC 717
Judges: R. F. Nariman, J., Sanjiv Khanna, J., Surya Kant, J.
Can the reservation of plots for Scheduled Castes (SC) and Scheduled Tribes (ST) for ship recycling be based on the total number of plots or just the plots being auctioned? The Supreme Court addressed this question in a recent case, clarifying the interpretation of the Gujarat Maritime Board’s regulations. The court’s decision impacts how reservations are applied in the ship recycling industry in Gujarat. The judgment was delivered by a three-judge bench comprising Justices R. F. Nariman, Sanjiv Khanna, and Surya Kant, with the majority opinion authored by Justice R. F. Nariman.

Case Background

In February 2017, the Gujarat Maritime Board (GMB) issued a tender to auction eight vacant plots at the Alang-Sosiya Ship Recycling Yard in Bhavnagar. Despite 20 vacant plots being available, GMB chose to auction only eight. The GMB decided to reserve four plots for the ST category, two for the SC category, and two for the General category, referencing the Gujarat Maritime Board (Conditions & Procedures for granting permission for Utilizing Ship Recycling Plots) Ship Recycling Regulations, 2015 (‘2015 Regulations’). The S.C./S.T. Shipbreakers Association (Respondent Nos. 1, 2, and 3) filed a Special Civil Application No. 5509 of 2017 before the High Court of Gujarat at Ahmedabad on March 14, 2017, arguing that the reservation should be based on the total number of plots available, not just those being auctioned. They contended that since the total reservation quota (14% for ST and 7% for SC) had not been met, all eight plots should be reserved for SC and ST candidates.

On April 22, 2017, the High Court stayed the tender notice. In its judgment dated April 16, 2018, the High Court ruled that all eight plots, and potentially all 20 if considered as a block, should be reserved for SC and ST candidates to meet the total reservation quota. The High Court quashed the tender notice and directed the GMB to conduct a fresh auction considering all vacant plots and applying the reservation as directed.

Timeline

Course of Proceedings

The High Court of Gujarat at Ahmedabad, in its judgment dated April 16, 2018, ruled in favor of the S.C./S.T. Shipbreakers Association. The High Court held that the reservation of 7% for SC and 14% for ST categories should be calculated based on the total number of plots available, not just the vacant plots being auctioned. Consequently, the High Court quashed the tender notice and directed the GMB to conduct a fresh auction, applying the reservation policy to all vacant plots. The High Court directed the GMB to complete the fresh auction within six months. The appellant, M/s. R. K. Industries, who was not a party before the High Court, challenged this interpretation of the 2015 Regulations before the Supreme Court.

Legal Framework

The case revolves around the interpretation of The Gujarat Maritime Board (Conditions & Procedures for granting permission for Utilizing Ship Recycling Plots) Ship Recycling Regulations, 2015. Specifically, the court examined:

• Clause 5.1 of the 2015 Regulations, which specifies the types of plots for which the Chief Executive Officer may grant permission for ship recycling:
  • a plot which is newly developed
  • a plot which is vacant
  • a plot which has fallen vacant on account of cancellation/termination of the permission.
• Clause 5.2 of the 2015 Regulations, which states: “All such plots, shall be offered for use for ship recycling after following the procedure of Tender-cum-Auction.”
• Clause 5.4 of the 2015 Regulations: “7% and 14% of the plots shall be reserved for Scheduled Castes and Scheduled Tribes respectively for granting permission for utilization of ship recycling plots.”
• Paragraph 15 of the 2015 Regulations, which defines “plot”: ““Plot” means piece of land adjacent to waterfront or otherwise earmarked by the Board for the purpose of ship recycling having dimensions specified in the permission letter. This shall include existing plot or plots that may be developed in future within the ship recycling yard under the Gujarat Maritime Board.”

The court also considered the previous regulations:

• Paragraph 9 of The Gujarat Maritime Board (Conditions and Procedure for granting permission for Utilising Shipbreaking Plots) Regulations, 1994: “Out of plots which were vacant as on 3rd August, 1992 or fell vacant thereafter, or any new plot which is developed thereafter 7 per cent of these plots shall be reserved for granting permission to Co-operative Societies all of whose members belong to Scheduled Castes, and 14% plots shall be reserved for Co-operative Societies all of whose members belong to Scheduled Tribes.”
• Clause 9 of the Gujarat Maritime Board (Conditions and Procedures for granting permission for Utilising Shipbreaking Plots) Regulations, 2006: “Out of total plots 7 per cent of these plots shall be reserved for granting permission to Co-operative Societies of all of whose members belong to Scheduled Castes, and 14% plots shall be reserved for Co-operative Societies of all of whose members belong to Scheduled Tribes.”

Arguments

Appellant’s (M/s. R.K. Industries) Arguments:

• The appellant argued that Clause 5.4 of the 2015 Regulations should be read in conjunction with Clauses 5.1 and 5.2.
• The appellant contended that the term “the plots” in Clause 5.4 refers only to the plots that are to be auctioned as mentioned in clauses 5.1 and 5.2, and not all the plots available.
• The appellant highlighted that the 2006 Regulations used the phrase “out of total plots,” which is missing in the 2015 Regulations, indicating a shift in the reservation policy.
• The appellant argued that the High Court’s interpretation of the term “plot” in paragraph 15, to include all plots, was incorrect in the context of Clause 5.4.

Gujarat Maritime Board’s Arguments:

• The GMB argued that the issue was academic since they had decided to follow the High Court’s judgment.
• The GMB argued that if the High Court’s judgment was not followed, it would lead to incongruous results, especially when a small number of plots are auctioned, making it impossible to apply the reservation percentage. For example, if only three plots were vacant and were auctioned, it would be impossible to reserve 7% and 14% of these three plots.
• The GMB also argued that the appellant should not be granted any relief since they had approached the court at a late stage.

Respondent’s (S.C./S.T. Shipbreakers Association) Arguments:

• The respondents argued that the tender notice of February 2017 was flawed.
• They contended that if reservation is taken from the total plots, six out of eight plots would be reserved, whereas if a contrary construction is adopted, only one plot would be reserved.
• The respondents argued that the GMB had followed the principle of reservation from the total number of plots, which is the correct principle to be followed.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. What is the meaning of the expression “the plots” contained in paragraph 5.4 of the Gujarat Maritime Board (Conditions & Procedures for granting permission for Utilizing Ship Recycling Plots) Ship Recycling Regulations, 2015? Specifically, whether the reservation of plots for Scheduled Castes and Scheduled Tribes should be based on the total number of plots or just the plots being auctioned.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Court considered the following regulations:

• The Gujarat Maritime Board (Conditions and Procedure for granting permission for Utilising Shipbreaking Plots) Regulations, 1994: The court noted that the 1994 regulations specified that reservations were to be based only on three categories of plots: those that were vacant on 03.08.1992, those that fell vacant thereafter, or any new plot which was developed thereafter.
• The Gujarat Maritime Board (Conditions and Procedures for granting permission for Utilising Shipbreaking Plots) Regulations, 2006: The court observed that the 2006 regulations changed the reservation policy by stating that reservations were to be made “out of total plots.”
• The Gujarat Maritime Board (Conditions & Procedures for granting permission for Utilizing Ship Recycling Plots) Ship Recycling Regulations, 2015: The court focused on the interpretation of the term “the plots” in Clause 5.4, and how it relates to Clauses 5.1 and 5.2, as well as the definition of “plot” in paragraph 15.

The following table summarizes how the court considered the authorities:

Judgment

The Supreme Court set aside the judgment of the High Court, holding that the reservation of plots for SC and ST categories should be based only on the plots that are to be auctioned, and not the total number of plots available. The Court reasoned that Clause 5.4 of the 2015 Regulations must be interpreted in the context of Clauses 5.1 and 5.2, which specify the plots that are to be auctioned. The court noted that the 2015 Regulations were a departure from the 2006 Regulations, which had specifically used the phrase “out of total plots.”

The following table shows how the court treated the submissions of the parties:

The following table shows how the court viewed the authorities:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by a textual and contextual interpretation of the 2015 Regulations. The Court emphasized that the meaning of “the plots” in Clause 5.4 should be understood in relation to Clauses 5.1 and 5.2, which explicitly refer to plots that are to be auctioned. The Court also took into account the change in language from the 2006 Regulations, which used the phrase “out of total plots,” to the 2015 Regulations, which omitted that phrase. This shift in language indicated a deliberate change in policy, according to the Court.

The Court’s reasoning was also influenced by the need to avoid incongruous results and to ensure that the reservation policy could be applied effectively in cases where a small number of plots were being auctioned.

Logical Reasoning:

The Court rejected the High Court’s interpretation that the reservation should be based on the total number of plots, stating that this would be contrary to the express language of the 2015 Regulations. The Court also rejected the argument that the issue was academic, emphasizing that the interpretation of the regulations was crucial for future tenders and auctions.

The Court also stated that, “In the case of reservation of vacant plots of a smaller number that are put to auction, it is for the Board to work the reservation policy contained in the 2015 Regulations in a non-arbitrary fashion, giving effect to reservation as authored by us hereinabove.”

The Court clarified that, “Once clause 5.4 is interpreted keeping in view the context of clauses 5.1 and 5.2, it is obvious that the expression “the plots” contained in clause 5.4 has reference only to plots that are to be auctioned, which are mentioned in clauses 5.1 and 5.2.”

The court further stated that, “Indeed, the definition clause is itself expressly subject to context to the contrary.”

There was no minority opinion in this case.

Key Takeaways

• The reservation of plots for Scheduled Castes and Scheduled Tribes in ship recycling should be based on the number of plots being auctioned, not the total number of plots available.
• The interpretation of regulations should be based on the context in which they are placed, and not just the literal definition of terms.
• The Supreme Court has clarified the interpretation of the 2015 Regulations, which will guide future tenders and auctions by the Gujarat Maritime Board.
• The Gujarat Maritime Board needs to ensure that the reservation policy is implemented non-arbitrarily, especially when a small number of plots are being auctioned.

Directions

The Supreme Court directed that all future tenders/auctions will abide by the interpretation given in the judgment. The Court also stated that the reservation of six plots out of the eight plots in favor of SC and ST candidates would continue for the purpose of the auction of eight plots.

Development of Law

The ratio decidendi of the case is that the reservation of plots for Scheduled Castes and Scheduled Tribes in ship recycling should be based on the number of plots being auctioned, not the total number of plots available. This decision clarifies the interpretation of the Gujarat Maritime Board (Conditions & Procedures for granting permission for Utilizing Ship Recycling Plots) Ship Recycling Regulations, 2015. The judgment also marks a change in the previous position of law as the earlier 2006 Regulations, which had specifically used the phrase “out of total plots,” was not considered applicable in this case.

Conclusion

The Supreme Court’s judgment in M/s. R. K. Industries vs. S.C./S.T. Shipbreakers Association clarifies that the reservation of ship recycling plots for SC and ST categories should be based on the plots being auctioned, not the total number of available plots. This decision sets aside the High Court’s interpretation and provides a clear directive for the Gujarat Maritime Board’s future tenders and auctions. The judgment emphasizes the importance of contextual interpretation of regulations and ensures that reservation policies are applied effectively and non-arbitrarily.