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SC puts brakes on HPCL, BPCL divestment

SC restrained Govt from going ahead with the divestment process without parliamentary approval.

business Updated: Oct 13, 2003 13:25 IST

In a major blow to the privatisation programme, the Supreme Court on Tuesday halted the disinvestment process for two major oil PSUs - HPCL and BPCL - and asked the Centre to get approval from Parliament before going ahead with the sell-off.

Delivering the crucial judgement, a Bench comprising Justice S Rajendra Babu and Justice GP Mathur said: "the Government is restrained from going ahead with the disinvestment process for HPCL and BPCL."

Allowing two petitions filed by Centre for Public Interest Litigation (CPIL) and Oil Sector Officers Association (OSOA), the Bench said the Government could not go ahead with the disinvestment of the two oil PSUs without getting "appropriate approval" from Parliament.

The Court accepted the main contention of the petitioners that the Government through an executive order could not have overridden a parliamentary legislation creating HPCL and BPCL in 1974 after acquiring the assets of ESSO and Burmah Shell.

Within minutes of the pronouncement of the judgement, the shares of Hindustan Petroleum and Bharat Petroleum plummeted before starting a modest recovery.

The officials associated with the disinvestment process termed the verdict as "fatal" for the privatisation programme but Disinvestment Minister Arun Shourie was not available for comments as he is in Germany.

The stock markets appeared to have speculated rightly as even on Monday the shares of the two oil PSUs led a general fall in the market sentiments.

Immediately after the pronouncement of the judgement by Justice Babu on behalf of the Bench, the Disinvestment Ministry directed the global advisors to halt the disinvestment process in the two PSUs.

When contacted, Disinvestment Secretary Dhirendra Singh told PTI: "of course, we have halted the process. It was a judgement in the open court."

The Government is caught in a piquant situation as it had gone ahead with the disinvestment process in the two oil PSUs, including due diligence in HPCL, even during the pendency of the two petitions challenging the Centre's decision to privatise the oil majors.

The Court, which had reserved its verdict on the two petitions on September 5, had refused to stay the process of disinvestment sought by the petitioners saying it would finally decide the issue and not piece-meal.

The Centre had decided to proceed with the disinvestment process of HPCL and BPCL undithered by the opposition demand for Parliamentary approval for the same as it had received an opinion from Attorney General Soli J Sorabjee stating that there was no need for Parliamentary approval.

The two petitioners had stated that the apex court's decision upholding the Government's decision to privatise aluminium PSU Balco did not have a bearing on HPCL and BPCL sell off as Balco was not created by a statute.

The main line of argument of the two petitioners was that the Government should have approached Parliament as these two companies were acquired by it in 1974 through a parliamentary legislation.

OSOA's counsel, senior advocate Fali S Nariman, had said the petitioner was not against the decision to privatise public sector undertakings. "What it was opposing was the manner of privatisation of the oil PSUs which were in the strategic sector," he added.

He had said as the oil companies were nationalised through an Act of Parliament, the Government, to uphold the Parliamentary norms of governance, should have approached it with a Bill either to repeal the nationalisation Act or modify it suitably to permit disinvestment through an executive order.

The Act nationalising the oil companies specifically said the companies were being acquired to serve the best public interest, he had mentioned and asked "the main question for determination by the Court was - can the executive by an order reverse the two enactments of Parliament".

The Government had contended that the Act of Parliament nationalising various companies in 1974 were of two kinds - one which imposed a specific bar on the Government to lower its stake below 51 per cent and the other which did not contemplate any such condition.

Giving a detailed reply to the arguments advanced by the petitioners, senior advocate Harish Salve appearing for the Union Government said under the Constitution it mattered little as to how a company was created as the law governing the PSUs - like Balco, BHEL and Maruti - were the same.

First Published: Sep 17, 2003 00:30 IST