|
Introduction
"I am not an advocate for frequent changes in laws and constitutions,
but laws and constitutions must go hand in hand with the progress of the
human mind. As that becomes more developed, more enlightened, as new
discoveries are made, new truths discovered and manners and opinions
change, with the change of circumstances, institutions must advance also
to keep pace with the times. We might as well require a man to wear
still the coat which fitted him when a boy as civilized society to
remain ever under the regimen of their barbarous ancestors."
- Thomas Jefferson,
With each passing day economies are becoming much more complex and
competitive. To progress in such times, indeed newer techniques have to
be evolved, however one should be mindful of the old adage which says
that, "the art of progress is to preserve order amid change and to
preserve change amid order".
Over the years the public sector has played a central role in enabling
our country to accomplish the national objective of self-reliance. It is
therefore natural to feel uncanny about the idea of disinvestment,
specifically, when the issue is one of disinvesting a fortune 500
company. Supporters of the idea claim that to survive in an
ever-changing economic environment, and for the economic progress of the
nation, disinvestment is the key. It is therefore suggested that
Industries which have become a liability for the government or in other
words, which have not been running as well as they potentially should,
may be disinvested.
Scenario Prior To 1990's
As India got Independence in 1947, a need was felt to build a strong
nation, with a government that was attentive to the needs of its people,
which would work for their betterment and prosperity. It was hoped that
a strong government would own undertakings that would create employment,
and work towards the eradication of poverty amongst other problems. The
decades between independence and the 90' witnessed enormous
industrialisation, where the government set up companies, and built a
strong infrastructure.
Post 1990's
By the advent of the 1990's, the Government had stretched its hands in
almost every sector, be it iron and steel, agriculture,
telecommunications, and automobiles, while many of these government
undertakings were doing well in their respective areas, few others were
not getting the desired results.
The notion of disinvestment was first brought up in the year 1991, when
the government, outlined the objectives of disinvestment as follows:
¢ It would broad base the equity
¢ Improve management
¢ Enhance the availability of resources for these enterprises
¢ Generate income for the exchequer
While initially, the idea was to disinvest not more than 20% of the
government equity in selected public sector undertakings, a major
transformation happened in 1996. The broad aspects of the policy of
disinvestment as laid down at this time were:
¢ To classify the public sector non-core strategic areas for the purpose
of disinvestment;
¢ To set up a Disinvestment Commission to deal with disinvestment
related matters;
¢ To take and implement decisions to disinvest in a transparent manner;
¢ To assure the workers and employees of job security or, in the
alternative, opportunities for retraining and redeployment.
The next important step was taken in 1999 when the government
classified, public sector into strategic and non-strategic areas.
Following were included in the list of Strategic Public Sector
Enterprises:
¢ Arms and ammunitions and the allied items of defence equipment,
defence air-crafts and warships;
¢ Atomic energy (except in the areas related to the generation of
nuclear power and applications of radiation and radio-isotopes to
agriculture, medicine and non-strategic industries);
¢ Railway transport.
All other Public Sector Enterprises were to be considered non-strategic.
While initially the government proposed disinvestment of up to 26%-50%
stake, over the years the policy of the government has undergone a huge
change. At the present day the government is considering the idea of
giving up its entire stake in the non-strategic areas where the
establishments are running in losses.
Disinvestment Commission
The Disinvestment Commission set up in 1996 is now the main body
governing matters related to disinvestment. The functions of the
disinvestment commission include:
¢ Facilitating the withdrawal of the public sector from non-core
strategic areas
¢ To assure the workers and employees of job security,
¢ Ensuring opportunities for retraining and redeployment.
¢ Ensuring that any decision to disinvest was to be taken and
implemented in a transparent manner.
On the recommendations of the Disinvestment commission, the Government
has disinvested a substantial part of its equity in enterprises such as
ITDC, IPCL, VSNL, CMC, BALCO, Hindustan Zinc, and Maruti Udyog. The
procedure followed in disinvesting the various government undertakings
has been different in different cases, for instance, while BALCO was a
strategic sale; Maruti was disinvested by a public offer. However most
of these units could be termed as sick, incapable of being revived or
under-productive and therefore the issue of disinvestment was not
considered to be controversial.
Issues involved in the HPCL/BPCL disinvestment
The major controversy surrounding the HPCL, BPCL disinvestment is that,
not only are these units running profitably but also that they belong to
the oil sector, a sector of strategic importance to the nation.
The government had taken the advice of the Advocate General, who
believed that the disinvestment of government equity in the two entities
did not require parliamentary sanction. The government then proceeded to
disinvest the two companies. However this decision to sell the oil
majors was challenged and Writ petitions were filed in public interest
directly before the Supreme Court under Article 32 of the Constitution
of India. [AIR 2003 SC250]
Following the arguments of the petitioners- The Oil Sector Officer's
Association and the Centre for Public Interest Litigation, and the
respondents, the Supreme Court, Speaking through, justice S. Rajendra
Babu, and Mr: Justice G.P. Mathur, on 16th September 2003, ruled that
the Centre will have to take prior approval from the Parliament for
selling stakes in the two PSU oil majors - Hindustan Petroleum
Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL).
The main contentions put forward by the petitioners, were;
1. The decision to sell majority of the shares in HPCL and BPCL to
private parties without parliamentary approval, is contrary to and
violative of the provisions of the ESSO (Acquisition of undertaking in
India) Act, 1974, the Burma Shell (Acquisition of undertaking in India)
Act, 1976, and Caltex (Acquisition of shares of Caltex Oil Refining
India Ltd. And all the undertakings in India for Caltex India Limited)
Act, 1977.
2. Whether the executive can by its orders reverse the two enactments of
the parliament nationalizing the oil sector companies?
Earlier decision in the Balco case
[AIR 2002 SC 1950]
The primary issue involved in the BALCO case was regarding, the validity
of the decision of the government of India to disinvest and transfer 51%
shares of m/s Bharat Aluminium Company Ltd. {hereinafter referred to as
Balco} The question that arose for consideration in that case was,
whether such a decision to disinvest is amenable to judicial review?
The petition was dismissed and the Supreme Court held that, "the process
of disinvestment is a policy decision involving complex economic
factors. The courts have consistently refrained from interfering with
economic decisions as it has been recognized that economic expediencies
lack adjudicative disposition and, unless the economic decision, based
on economic expediencies is demonstrated to be so violative of
constitutional or legal limits on power or so abhorrent to reason, that
the courts would decline to interfere". (It is important to note here
that Balco was not created by any act of parliament) The Supreme Court
held that in such a case the appropriate forum for testing policy is
parliament and not the court.
Rationale for disinvestment
As far as the legal perspective, it can be argued that, while BALCO was
not created by an act of parliament, and hence was dissolved without any
parliamentary mandate, Maruti Udyog Limited on the other hand was
acquired by a parliamentary mandate; however it was disinvested without
any amendment of the same. But again Maruti Udyog can in no way be
considered as a strategically important company to the nation, while oil
being probably the biggest imported items and the largest spender of the
foreign reserves, is a sector of vital national importance and should
not be disinvested. The recommendation committee has umpteen number of
times urged the government to formally declare oil as belonging to the
strategic sector, and that oil companies be removed from the list of
companies proposed to be disinvestment. Under the circumstances the
present judgment leaves many ambiguities. The main uncertainty is
whether it will be easier to close down a loss-making PSU than to make
attempts to revive it through disinvestment.
Another point in support of the proposed disinvestment can be found in
the basic jurisprudential theory of ownership as propounded by Salmond,
akin as it were to ones basic understanding of the concept itself, "an
owner has a right to use or dispose of his property as and how he
desires. Although the parliament created the Two PSU's however the
ownership vests with the government. Also, while formulating the
parliamentary enactments, which created the two oil majors, the
parliament had made no boundaries that the government may not cross.
Nothing whatsoever was said about the issue of disinvestment. Again this
was succeeded by the enactments which nationalized the banks, which in
turn clearly laid down for a 51% government holding in the company and
that any disinvestment below this percentage will require parliamentary
mandate.
Position against disinvestment
The petitioners argued that the BALCO judgment of the Supreme Court
allowing disinvestment of the PSU did not apply to HPCL and BPCL, as the
aluminum company was not set up by an act of parliament, argued it. The
court accepted the main contention of the petitioners that the two oil
companies cannot be privatized through an executive order, overriding a
Parliamentary legislation creating HPCL and BPCL in 1974 after acquiring
the assets of the previous ESSO and Burmah Shell.
On a different footing, another thing that comes to mind is, whether the
disinvestment policy being followed by the government has shortcomings.
On the advice of the Advocate General, it was decided to disinvest
government shares in the 2 oil companies. The Supreme Court verdict,
making it mandatory to get a parliamentary approval had come at a time
when Reliance group had already made its intentions of purchasing HPCL
shares more than clear. The due-diligence was on track and completed by
reliance to acquire HPCL. For any private company, not owned by the
government this would have been reason enough to hold the government
responsible to get its accounts in the open. Considering the fact that
Reliance and HPCL are competitors in the oil industry, the government
move does not appear to be very wise.
Conclusion
It is true that oil is one of the biggest consumer markets, going by the
past experiences, it can safely be said that, privatization in this
sector would make the consumer happy. One view is that the oil industry
is far too important for the economic development of the nation; it may
not be correct to leave its control in the hands of private companies.
As far as the long term impact of the judgment on the disinvestment
policy of the government is concerned, the apex court has answered this
question in the judgment itself by stating that the judgment has no
bearing on the disinvestment process, but is limited only to the context
of the two oil PSU's.
At the same time it may be said that the issue is almost certain to crop
up again sooner or later and will pose similar or even more challenging
problems especially in a country wedded to democracy but until then this
situation will exist. I may conclude by quoting the famous words spoken
by, Marilyn Ferguson:
It's not so much that we're afraid of change or so in love with the old
ways, but it's that place in between that we fear . . .. It's like being
between trapezes. It's Linus when his blanket is in the dryer. There's
nothing to hold on to.
|
The
author can be reached at: rajat@legalserviceindia.com /
