Does the SC order really end PSU disinvestment?  

September 26, 2003

Does the Supreme Court order really signal the end of the road for disinvestment? That is what the government says, but not everybody agrees. This piece by Sucheta Dalal appeared in Divvya Bhaskar on Setpember 22, 2003 as a Gujarati translation.

Not really the end of the road

By Sucheta Dalal

Let us not get carried away with the government’s petulant reaction to the Supreme Court judgement on the sale of the two oil companies or the temporary set back in the capital market.  Look closely at the facts. If you ignore government rhetoric, it is clear that there need be no “serious setback” to disinvestment process if the ruling coalition is serious about pushing ahead.

Consider some basic facts: Unlike the BALCO Union’s case, or protests by NALCO employees, the oil company issue was not about opposing disinvestment it was about the process.  Moreover, the oil company officers had the support of an eminent set of legal experts who agreed that the government was wrong in evading parliamentary clearance to the sale of oil PSUs.

The government’s entire case was based on Attorney General (AG) Soli Sorabjee’s opinion that the government could divest its holding in the two oil companies, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) without seeking consent from parliament, although the companies were created by parliamentary legislation.

This was contradicted by a 100 lawyers of the Supreme Court. A group of the eminence of Justices V.R.Krishna Iyer, O. Chinappa Reddy, P.B.Sawant (all retired judges of the Supreme Court), Justice Rajinder Sachar (retired Chief Justice, Delhi High Court), former law minister Shanti Bhushan and former Disinvestment Commission Chairman G.V.Ramakrishna issued a statement which said that the divestment of the oil companies indeed needed the approval of parliament.

So, when the government preferred to rely on the AG’s opinion, a setback was a distinct possibility. But bull markets rarely acknowledge the prospect of bad news. So, market analysts and operators preferred incomplete statistics that suggested unstinted support from the apex court to the disinvestment process and ignored the big difference this time. 

Unlike previous cases, the petitioners against the sale of oil companies did not challenge the divestment itself; and the judgement is categorical on this question. They merely challenged the government’s correctness in bypassing parliament.  The ruling coalition, armed with the approval of the Cabinet Committee on Disinvestment (CCD), tried to avoid the embarrassment of having the opposition parties scuttle its divestment plans, but was defeated by the Supreme Court. 

The moot question is; has the judgement really derailed the Disinvestment process? We spoke to former Disinvestment Commission Chairman G.V.Ramakrishna for some answers. After all, the government is still loosely following the disinvestment strategy crafted by him, and his reports are used by successive Disinvestment Ministers’ to justify several of their actions.

Mr.Ramakrishna says: “The judgement is a proper interpretation of the law and the constitution. There is absolutely no need to exaggerate the implications of the judgement for all disinvestment”.

Barring HPCL, BPCL and a few others, he says, the government needn’t go to parliament in most other cases. He also refutes the Disinvestment Minister’s claim that the sale of STC will be stalled.  “STC was never cleared by an act of parliament. It was merely registered as a company like BALCO was”, he says.

Even with regard to oil companies, those like ONGC Ltd. which were converted from commissions to corporate entities, Mr.Ramakrishna says there is no bar on disinvestment, so long as the Act does not stipulate that the company should always remain a government company”.

What then are the cases affected by the judgement?  Mr.Ramakrishna says, “Of 232 central PSUs only a few, other than BPCL and HPCL will be hit by the order”.  Public sector banks will need parliamentary approval if the government contemplates their privatisation, but that is not on the immediate agenda. Moreover, a bill to amend the Banking Companies Act has already been introduced in parliament in order to allow government holding to drop below 51 per cent.

The sale of Indian Iron and Steel Company, which was handed over to SAIL after nationalisation could be affected, because it too may involve an amendment to provisions of the original nationalisation act. But that still leaves around 215 companies that can be privatised. And these include 22 other cases where the Disinvestment Commission (DC) had made clear recommendations. 

The two telecom companies, MTNL and BSNL can be put on the divestment list, so can STC, Nepa Papers, National Fertilisers, Madras Fertilisers and NALCO. But, the NALCO privatisation has been scuttled by the Prime Minister himself for political reasons. Shipping Corporation of India, says Mr.Ramakrishna may be a grey are, but even there, government can sell the company to another PSU, with some divestment to the public through an Initial Public Offering.

The truly problem companies are the 102 loss making PSU’s who may not find any buyers. But the government has done nothing to restructuring them, cut costs and reduce their losses as recommended by the Disinvestment Commission. This only means that even without resorting to gimmicks such as selling some government companies to other PSUs, the Disinvestment Ministry can push ahead with its plans, with a slight change in direction.

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