The investment climate in India would be affected if the Supreme Court's verdict on allocating natural resources through auction was allowed to survive, the government told the court Tuesday.

The government's stand was conveyed to the constitution bench of the apex court that was hearing arguments on the maintainability of a presidential reference seeking its advisory opinion whether auction was the only method of allocating the natural resources.

Urging the constitution bench of the apex court to answer the presidential reference, Attorney General G.E. Vahanvati referred to the recent statement of US President Barack Obama that the investment climate in India was not conducive.

"This is relevant. Judgment (in 2G matter) is vague. It will affect the investment," Vahanvati told the bench of Chief Justice S.H. Kapadia, Justice D.K. Jain, Justice Jagdish Singh Khehar, Justice Dipak Misra and Justice Ranjan Gogoi.

"The problem (with the auction being sole method of allocation) was with regard to foreign investment. Any foreigner seeking to invest in India will get an opinion that it is not safe to invest in India as auction is the only way of disposing of resources and if resources are handed out in any other way, they will land in trouble."

Chief Justice Kapadia however told the attorney general that "the (plea of) investment climate may not hold good (as ground for maintainability of presidential reference)".

The presidential reference is rooted in the 2G verdict wherein the apex court said that if scarce natural resources like spectrum were to be allocated by the state, then the only legal method was a transparent public auction.

Supporting the maintainability of the presidential reference, the Federation of Indian Mineral Industries (FIMI) said that auction being the only method of allocating natural resources was "directly contrary to the existing provisions of Sections 1 and 11 of the Mines and Minerals (Development and Regulation) Act." 

The FIMI said that it had "vital stakes" in the 2G judgment.

Appearing for FIMI, senior counsel T.R. Andhyarujina told the court that the propositions of law in 2G verdict that auction was the only mode of allocating the natural resources was contrary to the statutory policy of giving preferential rights under mines and minerals development law.

"The propositions that every natural resource and asset of the state must necessarily be subject to the method of highest bidding in an auction are therefore not the law," he said.

Appearing for the Confederation of Indian Industries (CII), senior counsel Harish Salve told the court that the maintainability of the presidential reference was not in doubt as the court was being asked to give its opinion on the broad principle that natural resources should be alienated by the state only through auction.

The senior counsel said that the court was not being asked to pronounce its opinion on the conclusion of the 2G verdict cancelling 122 telecom licences.

There was a need to revisit the propositional concept that all natural resources henceforth would be auctioned, he said.