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Two cases, two judgments

Some time ago, the Supreme Court declined to interfere with the disinvestment of Balco, a government company fully owned by the central gove...

Written by Pallav Shishodia |
November 26, 2003

Some time ago, the Supreme Court declined to interfere with the disinvestment of Balco, a government company fully owned by the central government. It held that the ‘‘process of disinvestment is a policy decision involving complex economic factors’’ which lack adjudicative disposition. Recently, the Supreme Court restrained the central government from proceeding with the disinvestment of HPCL and BPCL without appropriately amending the statutes. This judgment evoked strong reactions. Those who support disinvestment viewed it as ‘‘major road-block’’ to economic reforms and those who opposed to reform found it ‘‘historic’’. The court cannot be and is not concerned with either side of the debate. The question is, how far are these oil companies similar to Balco.

Firstly, as per company law, a government company is a company in which either central or state government has 51 per cent or more of shares. Before disinvestment, Balco conformed to this description. Secondly, a government company is floated to conduct business in a strategic area of the economy with the objective of distribution of material resources for the common good. The assumed role of Balco in the business of metals was much the same.

Thirdly, the perception now that this objective can be better achieved by disinvestment in a government company is not subjected to judicial review. It is conceded that this being an area of policy decision, choices are to be left to government. Lastly, a government company is subject to audit by the Comptroller and Auditor General of India and its audit report is placed before Parliament. So was the case with Balco.

After the central government acquired the erstwhile oil undertakings, a provision was made that the central government may by notification direct the same to vest in government companies and they were so vested as a one-time act. The undertakings have changed almost completely. This vesting can be revoked or nullified by an ordinance. In contrast, after the coal mines nationalisation, a specific provision was made that no person, other than the central government or a government company, shall carry on coal mining operations. There is also a direct stipulation that government shall hold not less than 51 per cent of paid up capital of nationalised banking companies.

In the HPCL judgment, the court says that what is contemplated is that the central government can vest oil undertaking in a government company and no other. The above limitations of coal companies or banking companies is implicit in the case of oil companies.

The extent of parliamentary control was explained by a constitution bench of Supreme Court in 1956. In ‘Ram Jawaya’ the court held: ‘‘In the Indian Constitution, therefore, we have the same system of ‘parliamentary executive’ as in England and the council of Ministers consisting, as it does, of the members of the legislature is, like the British Cabinet… Suppose now that where the ministry or the executive government of a State formulates a particular policy in furtherance of which they want to start a trade or business. Is it necessary that there must be a specific legislation legalising such trade activities before they could be embarked upon? We cannot say that such legislation is always necessary. If trade or business involves expenditure of funds, it is certainly required that parliament should authorise such expenditure…’’ A government company, being a distinct legal entity, is degrees removed from such parliamentary control.

In other words, the interpretative process which led to the conclusion that prior approval of parliament is required for disinvestment defies understanding. It leaves one wondering about how what is considered implicit is to be deduced! Also, in future, is the government to go to Parliament for prior sanction before disinvesting in other PSUs? We await the answers.

(The writer is a Supreme Court advocate)

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