The Telegraph
Since 1st March, 1999
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Oil selloff slips on legal ground
- Court stops HPCL, BPCL divestment

New Delhi, Sept. 16: Acts of the past visited the government with a vengeance today when the Supreme Court stalled the sale of Hindustan Petroleum and Bharat Petroleum on a legal point and not in an indictment of the policy of divestment, which it made clear.

It said the two companies — HPCL and BPCL — can not be sold because they were nationalised under acts of Parliament that only the legislature can repeal. The government was trying to sell its stake in the companies through an executive order on the advice of attorney-general Soli Sorabjee, a course the court had rejected.

The judgment does put the government in a bit of a spot because it had intended to raise Rs 13,200 crore in this financial year through divestment and the two oil companies were the crown jewels. The options (see chart) left before the government to counteract the judgment will be time-consuming.

Minister Arun Shourie, piloting the divestment programme, said: “We will consult the law ministry and the attorney-general (Soli Sorabjee) for available options and these will be put before the Cabinet Committee on Disinvestment on October 3.”

Although Shourie saw the development as a “major setback” to reforms, the Supreme Court took care to emphasise that it was not opposing divestment. The division bench of Justices S. Rajendra Babu and G.P. Mathur acknowledged that privatisation and changing social realities required change in policies.

Opposition parties resisting privatisation interpreted it as a victory. Worryingly for the government, the Congress said it would oppose any move to secure parliamentary approval. A bill to repeal the acts will have to be passed in both Houses and in the Rajya Sabha that cannot happen without Congress support.

Seen in that context, the options before the government could be limited.

Petroleum minister Ram Naik did not sound as elated as the Opposition but used the word “historic” to describe a judgment by “the supreme authority”. He has been opposing the divestment.

The court relied heavily on the preamble of the two acts acquiring the assets of the foreign companies, Esso and Burmah Shell, the original avatars of HPCL and BPCL.

It said the acquisition was being done “to ensure that the ownership and control of petroleum products, distributed and marketed in India by the said companies are vested in the state and thereby so distributed as best to subserve the common good”.

The judges said the law contemplated that the two would be government companies.

“Here what is required to be seen is not which asset can be transferred or not, but whether the undertaking can change its character from a government company to ordinary company without parliamentary clearance in the light of the statute of acquisition,” it added.

The answer is no.

The public interest litigation against the divestment was filed by the Oil Sector Officers Association and the Centre for Public Interest Litigation.

Apart from going for a review of the verdict, the government could seek to amend three laws on the oil industry or bring a single legislation which will allow it to divest its stake in all companies that have been set up or nationalised through acts of Parliament.

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