SC throws licence raj rulebook at Govt

As also identical provisions in the laws enacted in 1976 and 1977 to acquire the Indian undertakings of two other oil multinationals, Burma Shell and Caltex.

In other words, the Government has to now go to Parliament and seek its approval—a prospect that throws into disarray the schedule of disinvestment and brings politics in direct conflict with economics.

The court clarified that today’s verdict was not a reflection on the policy of disinvestment but rather limited to whether the Centre was empowered to disinvest HPCL and BPCL through an executive action without repealing or amending the laws concerned. ‘‘We find that on the language of the Act such a course is not permissible at all,’’ it said.

Speaking to The Indian Express in Berlin, Disinvestment Minister Arun Shourie said the ruling makes the entire process ‘‘infinitely more complex.’’

The complexity revolves around Section 7 which says that after the Centre acquires the oil undertakings, it can transfer them only to ‘‘Government companies’’- meaning, companies in which the Government has at least a 51 per cent stake. It was under this provision that the Centre transferred the assets of the multinationals to HPCL and BPCL, formed then under the Companies Act.

On Section 7, the Government argued that no Parliamentary approval was needed since there was otherwise no bar on the sale unlike in the laws related to bank nationalisation or the coal sector. These two laws say clearly that shareholding will always be with the Government.

However, the Supreme Court disagreed saying that the ‘‘idea embedded in those provisions (for banks and coal) are implicit (in Section 7).’’ Therefore, if disinvestment is allowed, said a bench comprising Justice S Rajendra Babu and Justice G P Mathur, BPCL and HPCL will cease to be Government companies as the Government will be reduced to a minority shareholder.

‘‘What is contemplated under Section 7 of the Act is only a Government Company and no other,’’ the bench said, making it clear that the law as it stands does not permit transfer of majority control to any private entity.

If the Act intended that the undertaking vested in the Government company can in turn be transferred even to a private company, the court said ‘‘there certainly would have been an indication to that effect in the Act itself.’’

The sale of shares of HPCL and BPCL cannot be, the court said, to such an extent that ‘‘the substratum of the character of the Government companies is allowed to be lost and converted into ordinary companies’’ as the Centre’s discretion is ‘‘subject to the statutory limitation of Section 7.’’

Referring to last year’s BALCO judgment which upheld the policy of disinvestment, the court said it had no bearing on HPCL and BPCL as the aluminium company had ‘‘no statutory backing.’’ Meaning, there was no statutory bar on disinvesting BALCO.

The court, however, added that Maruti Udyog was comparable because that was also acquired under an enactment. Yet, it stood on ‘‘a different footing’’ because the disinvestment that took place over the years in Maruti merely by executive action has never been challenged.

While explaining the significance of Government companies, the court said they fall under the jurisdiction of the Comptroller and Auditor General and their annual reports are laid before Parliament. ‘‘Such control will be lost if a company ceases to be a Government company,’’ it added.