Indian Supreme
Court Sets Example for Pakistan SC
Special
SAT Report
NEW
DELHI: The Indian Supreme Court has set a shining example for
all those who are waiting with open mouths to grab Pakistan's
largest corporate giant, the state-owned Pakistan State Oil, up
for privatization. Will the Pakistan Supreme Court also pick up
courage to make such a decision?
The
Indian SC last week restrained the Government from proceeding
with the privatization of two major public sector enterprises
— Hindustan Petroleum Corporation Ltd. and Bharat Petroleum
Corporation Ltd., holding that disinvestment in them could not
be done without prior Parliament approval.
In
a stunning blow to the Central Government's action of going ahead
with privatization through executive orders bypassing Parliament,
a Bench, comprising Justices S. Rajendra Babu and G.P. Mathur,
held that such a procedure was not permissible at all.
The
Bench said: "We allow these petitions restraining the Central
Government from proceeding with disinvestment resulting in HPCL
and BPCL ceasing to be Government companies without appropriately
amending the statutes concerned suitably."
The
petitions were filed by the Center for Public Interest Litigation
and Oil Sector Officers Association.
The
judges made it clear that they were not expressing any opinion
on the disinvestment policy as there was no challenge before the
court as to the policy of disinvestment. The only question before
it was whether disinvestment in these two oil majors could be
made without parliamentary approval as they were governed by specific
statutes — ESSO (Acquisition of Undertaking in India) Act,
1974 and the Burma Shell (Acquisition of Undertaking in India)
Act, 1976.
The
Bench pointed out that in the preamble of the two Acts acquiring
the assets of the foreign companies, it was stated that the acquisition
was done to ensure that the ownership and control of petroleum
products, distributed and marketed in India by the said companies,
were vested in the State and thereby so distributed as best to
subserve the common good. It said that the Act contemplated that
the oil PSEs would be Government companies.
"Here
what is required to be seen is not which asset can be transferred
or not, but whether the undertaking can change its character from
a Government company to an ordinary company without Parliamentary
clearance in the light of the statute of acquisition," the
judges said.
The
Government, which currently holds 51 per cent stake in HPCL, has
proposed to offload 34.01 per cent stake to a strategic partner
along with management control, while five per cent would be offered
to the employees at a concessional price.
The
Bench pointed out that under the Constitution for starting a new
public sector enterprise, parliamentary approval was necessary
as the expenditure was to be made from the Consolidated Fund of
India. "If this is the background in which a new company
is set up, can such a company be dismantled without some kind
of parliamentary mandate," it asked. When the provisions
of the Act provided for vesting of the property of the undertaking
in the Government or a Government company, it could not mean that
it enabled the same being held by any other person, the Bench
said.
The
judges referred to the debate all over the world whether privatization
law was necessary and said this aspect had been dealt with in
Pierre Guislain's book `The Privatization Challenge' published
by the World Bank, according to which some countries had opted
to enact privatization laws even when privatization could have
been implemented without amending the existing legislation.
The
Bench also noted that countries such as the United Kingdom., France,
Italy, Argentina, Mexico and Brazil had enacted laws to achieve
privatization
The
door has finally shut in the face of India's privatization program,
according to Disinvestment Minister Arun Shourie.
Speaking
to the Hindustan Times from Berlin, he said, "The final body
blow has come for the second time, almost to the day. It was on
September 7 last year when the three-month moratorium on the sale
of oil PSUs came into existence. That was a near-fatal blow. Today's
court decision will have far-reaching ramifications for India's
disinvestment program"
The
Cabinet Committee of Disinvestment (CCD) will meet on October
3 to take stock of the SC ruling and calibrate its strategy to
prevent the sell-off drive from running aground. Shourie will
go through the process of consulting Law Minister Arun Jaitley
and Attorney-General Soli Sorabjee and prepare an options paper
for the CCD.
To
prevent the disinvestment process from being derailed completely
following the SC verdict, the government could take a recourse
to introducing a comprehensive Denationalization Act that will
pave the way for privatizing PSUs that were nationalized by parliamentary
approval years ago.
In
Mumbai, Petroleum Minister Ram Naik said the SC decision was historic.
He said it would not have any impact on the 'valuations' of the
two oil majors. Naik added: "The market price of the two
companies may now fall, but the process of disinvestment will
take its own course. We are committed to it." Naik said the
government has already taken a decision to hold majority stakes
in the ONGC, IOC and GAIL.
HPCL
share price crashed by Rs 45.45 to close the day at Rs 344.90,
while BPCL fell by Rs 6.90 at Rs 323.35.
The
judgment covers only the two oil companies acquired by the government
after passing appropriate legislation in Parliament in the 1970s.
Shourie
added that the SC verdict would have major implications not only
for Central PSUs like HPCL and BPCL but also for other state-level
PSUs that had been established through legislative acts.
"This
is the difference between India and China. In India, everybody
has a veto," said Shourie.
Interestingly,
the government had gone ahead with the sell-off process for the
two oil PSUs even though the matter was sub judice. Sorabjee had
given his opinion in favor of disinvesting the two firms and had
said that the disinvestment did not require parliamentary approval.
Sorabjee had said that "after analyzing all aspects of the
matter, parliamentary legislation or sanction or approval is not
necessary to effectuate the 'in principle' policy decision of
disinvestment in HPCL and BPCL".
The
SC ruling states that the government cannot draw any precedent
from the Maruti Udyog sell-off. "Maruti cannot serve as a
precedent for the Center as the mode of privatization of the automobile
major was not tested by any Court," the ruling states.
Immediately
after the judgment, the advisors to the sell-off were asked to
stop the due diligence process by the Department of Disinvestment.
Naik
said, "On receipt of the judgment from the SC, the Disinvestment
Ministry will study the 20-page judgment and invite comments from
the concerned ministries like the Petroleum Ministry and Law Ministry,
and the attorney-general. The issue will then be deliberated and
the conclusions will be taken up by the Cabinet."
Finance
Minister Jaswant Singh said the Supreme Court ruling freezing
the sale of HPCL and BPCL would not have an impact on foreign
investment, adding high growth would still lure investors.
"There
is no hindrance to foreign investment. I am sure they will continue
to invest because of high growth in the economy," Singh told
Reuters.
In one voice, Opposition parties and trade unions welcomed the
Supreme Court's decision and viewed it as a vindication of their
stand.
The
Opposition parties, including the Congress, the Left and other
smaller parties, made it crystal clear that they would oppose
disinvestment of these oil companies if the Government decides
to seek the necessary Parliamentary approval. Some Congress leaders
pointed out that even some allies of the BJP in the National Democratic
Alliance Government were opposed to this policy.
The
former Prime Minister, Chandra Shekhar, too hoped that the Vajpayee
government would now retrace its steps, which "were taken
under the pressure from the World Bank and the International Monetary
Fund''.
The
trade unions too welcomed the judgment and described it as a vindication
of their stand.
The
Court's decision was also welcomed by the Lok Dal president, Ajit
Singh. "The apex court has taken the correct Constitutional
position. In cases where large amounts of public money are involved,
Parliament must have the final say."
