The Hindu : Disinvestment and Parliament

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Monday, Feb 03, 2003

Opinion

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Disinvestment and Parliament

By Rajindar Sachar

Even if the Centre is convinced that the BPCL should be managed by a private company, it can facilitate this only after Parliament's approval.

THERE IS a serious controversy over whether the Government can disinvest shares in the Bharat Petroleum Corporation Ltd. (BPCL) without Parliament's approval. Though the Attorney-General has agreed with the Government view that it is not needed, the matter is too grave, affecting Parliament's sovereignty, to permit it to rest there. The proper course would be to refer it to the Supreme Court under Article 143 of the Constitution.

Prior to 1976, Burmah Shell operated two companies in India — one refining crude oil and the other selling petroleum products. It was acquired by the Central Government under the Burmah Shell Acquisition of Undertakings Act, 1976. The Preamble to this 1976 Act recited the objective for such a legislation: "And whereas it is expedient in the public interest that the undertakings in India of Burmah Shell Oil should be acquired in order to ensure that the ownership and control of the petroleum products distributed and marketed in India by the said company are vested in the state and thereby so distributed as best to subserve the common good." This Acquisition Act had used words almost similar to those of Article 39-A of the Constitution from the Directive Principles of the State Policy which provides that the "state shall in particular direct the policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good". By virtue of Section 7 of the 1976 Act the Centre vested its title and ownership in a Government Company — BPCL.

The Government's apparent justification for avoiding going before Parliament is based on the specious argument that under the Companies Act any shareholder (even the Government) has the freedom to dispose of its shareholding in the manner it likes. But this assumes wrongly that the BPCL is a private preserve of the Executive and can be placed on a par with a private company.

The Supreme Court has observed that: "The Government carries on various trades and business activity through the instrumentality of the state such as Government Company or Public Corporations which being state instrumentalities are state within the meaning of Article 12 and, as such, they are subject to the observance of fundamental rights embodied in Part III as well as to conform to the Directive Principles in Part IV of the Constitution... and society has a stake in their proper and efficient working."

The argument that the BPCL being registered under the Companies Act is governed solely by it is fallacious. The BPCL came into existence by virtue of the 1976 Act. Parliament's mandate was that the management and control be exercised directly by the Government or through a Government company. It may be that the Government overdid the control and did not allow full autonomy and interfered with the day-to-day working of these public sector undertakings. But that is an aberration which has to be corrected by the proper implementation of Government policy. It cannot justify a breach of the policy underlying the 1976 Act.

Even the separate entity plea under the Companies Act wears thin because of the principle of lifting of the veil, recognised under the Companies Act both in England and in India. The courts have shown themselves willing to "lift the veil" where the device of incorporation is used for some illegal or improper purpose, because "the life of the law has not been logic; it has been experience". The Supreme Court has held that the Government may act through its instrumentality or agency of natural persons or it may employ the instrumentality or agency of juridical persons to carry out its functions. It has been held that the Government, in many of its commercial ventures and public enterprises, is resorting more and more frequently to this resourceful legal contrivance of a corporation because it has many practical advantages and at the same time does not involve the slightest diminution in its ownership and control of the undertaking. In such cases, the true owner is the state, the real operator is the state and the effective controller is the state and accountability for its actions to the community and Parliament is of the state. The doctrine of lifting of the veil thus marks a change in the attitude the law had originally adopted towards the concept of the separate entity or personality of the Corporation, so as to meet the requirements of different economic problems. It may be said that as the Executive has formed a Government company in the first instance by resorting to the Companies Act, it is free to change the policy and decide to disinvest and even change the management because originally it was the Executive's policy.

But the cases of the BPCL and other Government companies which owe their existence by virtue of an Act of Parliament are totally different.

The reason is that it was Parliament which initially determined the policy of how the use of petroleum products, their distribution and marketing in India is to be carried out and it laid down under Section 7 of the 1976 Act that the Central Government or a Government company would be the owner. It was by virtue of this provision that the BPCL was made the owner of these assets which had come from Burmah Shell. If now the Government of India wishes to transfer those assets, management and control to a private investor it is not a case of merely exercising its power as a shareholder to transfer the shares under the Companies Act. By doing so it would be perverting the very rationale of the 1976 Act and making a mockery of the objective of the legislation retaining the Government as the owner of the petroleum products.

It may also be mentioned that the Centre is under pressure from the multinational corporations to change the labour laws to facilitate a "hire and fire" policy. In the case of Government companies, the Supreme Court has held that a rule for terminating employment by giving notice is arbitrary and hit by Article 14 of the Constitution. The Government, therefore, cannot bring in this change in the BPCL and other Government companies. The Centre's present action in seeking to convert the BPCL into a non-Government company would be ultra vires, the reason being that it is seeking to violate Parliament's mandate indirectly and is also seeking to change the law regarding employees and Government control. Thus, it is seeking to exercise power for a purpose opposed to the mandate given by the 1976 Act.

Even if the Centre is convinced that the BPCL should be managed by a private company, it can facilitate this only after Parliament's approval. It cannot resort to an indirect manner of getting around Parliament's mandate by seeking to disinvest its majority shareholding.

Of course, it is needless to emphasise the serious consequences of disinvestment in the BPCL and other Government undertakings. The Government has reportedly asked oil PSUs to contribute interim dividends of Rs. 2,600 crores to the national exchequer (the BPCL's share is Rs. 60 crores) to meet its fiscal deficit and for using subsidies for the weaker sections.

Is it not a cruel joke that the surplus generated by the PSUs is sought to be gifted through disinvestment to the very foreign oil giants which were driven out by the 1976 Act? Why cannot the Opposition in the Rajya Sabha pass a resolution disapproving of these disinvestments if it is serious about opposing it? The public has a right to know.

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