The Hindu : Disinvestment and Parliament

Online edition of India's National Newspaper
Friday, Sep 19, 2003

Opinion

Opinion - Leader Page Articles

Disinvestment and Parliament

By Rajeev Dhavan

Questions of disinvestment are not to be decided by super-Ministers and accountants. Public companies are the nation's assets.

THERE IS a growing myth that a vast `executive' power is vested in the Union and State Cabinets, which can be exercised at will. Theoretically, the Executive is responsible to Parliament. But this process has broken down — provoking Opposition Members of Parliament to noisily jump into the well of the House to defend democracy. The result is that Governments do what they like, without engaging Parliament.

The prime example of this is the GATT negotiations (1988-94) when repeated requests for a full debate were turned down. Since the States were affected, Tamil Nadu, Orissa and Rajasthan even filed federal disputes before the Supreme Court. The Arjun Singh Report was kept a secret. India failed to protect its pharmaceutical health or agricultural interests — waking up only in Doha in 2001. The recent Cancun spectacle shows that had India woken up a decade ago, we would not have been in this mess in the first place. The other major area of uncontrolled policy-making has been `disinvestment' — especially since 1998. This `bonanza' dispensation came in various forms. It was not always clear what the disinvestments were for. To offload loss-making commercial mistakes? To raise revenue? Or to simply sell `national resources'?

With Parliament disempowered, people turned to the courts. In the Balco case (2002), the Supreme Court declared that all this was a matter of public policy subject to limited judicial scrutiny. The practical result of this was that the Government had a field day. But in order to cover its tracks, the Government sometimes invoked the legitimating device of seeking the legal opinion of the Attorney General — to reinforce its policy and action.

One of the biggest sales of the last half-century is the plan to `privatise' the Hindustan Petroleum Corporation Limited and the Bharat Petroleum Corporation Limited through sale of shares. Amidst considerable publicity, the Attorney General, Soli Sorabjee's opinion was sought. Mr. Sorabjee declared that the disinvestment of HPCL and BPCL could take place without reference to Parliament. We must accept that the Attorney General — especially Mr. Sorabjee — is not just a `hit man' to support Government policies but the `constitutional conscience' of the nation. When he advises under such publicity, it must be expected that he has taken into account not just the `legal' issues, but also the larger issues of Executive accountability to follow the singular rule of constitutional caution: when in doubt, ask Parliament. An Attorney General's opinion can never be a substitute for democracy.

In the HPCL-BPCL judgment of September 16, 2003, the Supreme Court invalidated the Government's decision to sell the shares of these companies to private parties without parliamentary approval or sanction in violation of the provision of the `Esso', `Burmah Shell', and `Caltex' Acts of 1974-77. In the Court, the Government pursued its usual `public policy' argument that just as the Maruti and Balco sales were matters of public policy, so were these investments which were generally good for the nation and the public interest. Private interests were also watching these developments with interest. The Union's counsel pointed out that the de-regulation of the petroleum industry was already taking place and referred to the authorisations to Reliance and Essar in certain critical areas. This raised other questions not brought to the fore. Who was the Government dismantling its petroleum apparatus for? But since the Government got away with earlier disinvestments under the broad banner of `public policy,' it expected the Court to permit it to do so again. But, Justice Rajendra Babu's judgment in this `petroleum' case not only stopped the disinvestment, but also added important insights into questions of disinvestment generally.

As far as these cases were concerned, what was needed was an examination of the various statutes — both in letter and spirit. The very purpose of the Esso, Burmah Shell, and Caltex Acts (1974-77) was that these corporations be "acquired in order to ensure that the ownership and control of the petroleum products distributing and marketed in India by the said company (ies) are vested in the state and thereby so distributed as best to subserve the common good". Clearly, this could only be done through state ownership. But since this purpose was in the preamble and not the body of the Act, the Acts themselves made it clear that the assets of these acquired companies will vest in the Central Government or a `government company'. A government company is one where the Government owns more than 51 per cent of the shares. If the Attorney General's prescription was correct, the sale of shares did not violate these provisions. But, if the government company ceased to be a government company, this provision was clearly transgressed. Something that Parliament had entrusted to the Government or a government company could not be surrendered to private control. The Court could have gone further to reinforce this argument. If the scheme of the acquiring Acts is examined, it would have become clear that after their `privatisation,' HPCL and BPCL would have got special statutory privileges and benefits and even invoked criminal penalties to protect their functioning — of a kind unheard of for private companies. Such special privileges can only be for government corporates. Thus the statutes militated against privatisation — without amending which no privatisation was possible.

Significantly, Justice Rajendra Babu went further to examine the general policy of disinvestment in a wider perspective. Article 39 of the Constitution seeks to ensure "that the ownership and control of the material resources of the community are so distributed to subserve the common good". But Justice Babu presented a new constitutional approach by referring to Article 113(2) and R.71 of the General Financial Rules to show that when a new company is set up as "an instrument of service," and shown against the grants of any Ministry in the annual budget, this fulfils the "technical requirement of parliamentary approval" for the company. The learned judge, therefore, pointedly asked: "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?" The judge mildly hints that, perhaps, this question was not asked in the Maruti and Balco cases. This hint carries the broader message that no public company should be dismantled without some kind of parliamentary mandate. This is a refreshing change from the Balco approach, which took disinvestment for granted and declared a judicial "hands-off" in these matters.

Questions of disinvestment are not to be decided by super-Ministers and accountants. Public companies are the nation's assets. They have been paid for by the nation and approved by Parliament. They have immense consequences. For years the workers have been arguing that they have built these companies into the national assets that they have become today. The law regards workers being transferred from one owner to another as an act of slavery — if it is done without their consent. In these processes, the workers lose out — ceasing to be public servants. No one is really accountable. Parliament is sidelined. The courts declare that they will not interfere in policy. In the Balco case, the court retreated further saying that it would not interfere in matters of valuation unless the methodology adopted is arbitrary (which, of course, would also be a matter of policy).

It is no one's argument that the state should hold on to its sick companies not essential to the public interest. Some must go, others written off. But when the nation's wealth is being sold off, something more is required than the self-subsuming policies of Ministers, the over-zealous calculations of accountants, the supportive opinions of Attorney Generals and the affirmation of `babus' and their bosses in the administration. In these petroleum company cases, there were many actors waiting and watching in the wings. The Government itself was divided in its reaction to the judgment. The Petroleum Minister, Ram Naik, welcomed the judgment. The Disinvestment Minister, Arun Shourie, thought it was a setback. Can public policy be made like this? Justice Rajendra Babu's judgment provides direction for not just this but all disinvestment by asking that if "from a constitutional angle, a public company is set up by parliamentary approval can such a company be dismantled without some kind of parliamentary mandate?" Surely, this is an insight for Mr. Shourie, the Attorney General and the nation.

Printer friendly page
Send this article to Friends by E-Mail

Opinion

News Update

Stories in this Section

Monument and folly

Problematic privatisation

Disinvestment and Parliament