TMI Blog2003 (9) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhushan, Dr. K.S. Chauhan, Chand Kiran, Dr. D.N. Sandanshiv and Suresh Kant for the Petitioner. Ravi Prakash Gupta for the Intervener. L. Nageswara Rao, Harish N. Salve, Prateek Jalan, Saurabh Kirpal, B.V. Balaram Das and K.C. Kaushik for the Respondent. JUDGMENT S. Rajendra Babu, J. - In these two writ petitions filed in public interest the petitioners are calling in question the decision of the Government to sell majority of shares in Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) to private parties without Parliamentary approval or sanction as being contrary to and violative of the provisions of the Esso (Acquisition of Undertaking in India) Act, 1974, the Burma Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Limited and all the Undertakings in India for Caltex India Limited) Act, 1977. 2. The petitioners contended that in the Preamble to these enactments it is provided that oil distribution business be vested in the State so that the distribution subserves the common general good; that, further, the enactments mandate that the assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal the Electricity Act, 1998 was amended by replacing section 48(1) thereof which expressly authorises the Minister of Environment and Energy to dispose or otherwise deal with the shares of the Hydro One Inc. and on that basis, disposed of the appeal. It was further noticed in that decision that the reasons given by the Superior Court of Justice cannot be read as a general pronouncement on the rights of the Crown to deal with its assets; that, the learned Judge purported to analyse a specific provision in a specific Act; that, he did so in the context of the entirety of the Electricity Act, 1998, the specific circumstances surrounding its enactment and the comments of the Minister responsible for that specific Act. 4. In the counter-affidavits filed on behalf of the contesting respondents, it is urged that the policy of disinvestment followed by the Government of India has been upheld by this Court in BALCO Employees Union v. Union of India 2002 (2) SCC 333; that the decision to disinvestment and the implementation thereof is purely an administrative decision relating to the economic policy of the State; that, it is the prerogative of each elected Government to fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d protect consumers interest in the oil sector; that, steps have been taken to introduce in Parliament a Bill for establishing a statutory regulatory authority; that, two private parties viz., M/s. Reliance Industries Limited and Essar Oil Limited, have already been granted authorisations to market transportation fuels and the Government has already deregulated Exploration and Production, Refining and Pipelines; that, there is now widespread private sector participation in Exploration and Production, Refining and Pipelines; that, petroleum sector and consumers are expected to benefit as a result of such increased competition; that, in this global economic scenario and the need for greater private participation and private finance initiative, disinvestment by Government of its shareholding in State-owned companies is an instrument of economic policy accepted globally. It is also brought to our notice by him that assets of the HPCL and BPCL were acquired by the Central Government through Acts of Parliament but in course of time of more than quarter of a century the assets have changed their nature and today they bear hardly any resemblance to the assets which were acquired under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re acquired by the Government by legislation was that part of the assets included the marketing part of a foreign company; that the Parliamentary debates specifically show that the understanding was that for the transfer of the shares and assets in an Indian company did not require the enactment of a law. That part of the assets belonging to the two oil companies were obtained by negotiated purchase, rather than through acquisition; that in the case of Burmah Shell, the assets belonging to the Indian subsidiary were brought through a commercial transaction; that, it cannot be gainsaid that the companies are free to sell off their assets without any change in the law; that thus if the companies desire to sell off at the distance of time the old machinery inherited by them (and the value of which is a small fraction of its current net worth), there is no legal embargo even if it amounts to the company no longer holding any of the assets vested in after nationalisation; that if the contention of the petitioners is accepted, the Central Government cannot sell its shares even in such a company; that, the definition of a Government Company can be amended under the Companies Act generally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trument of service" and exhibited separately in the demand for grants for the concerned Ministry while presenting the Annual Budget. Under Article 113(2) of the Constitution, estimates are presented to Parliament in the form of demand for grants. This fulfils the technical requirement of Parliamentary approval when a new company is set up. The President, in exercise of his powers conferred under Article 113(2) of the Constitution has framed the General Financial Rules, in which under Rule 71, it is provided that no expenditure shall be incurred during a financial year on a new service not contemplated in the Annual Budget for the year except after obtaining the supplementary grant or an advance from the Contingency Fund. Setting up a new public sector company is defined as a new instrument of service for which approval of Parliament is required for expenditure from the Consolidated Fund of India. If this is the background in which a new company is set up, can such a company be dismantled without some kind of parliamentary mandate ? In this background we will now consider the case on hand. 7. The pleadings filed and the arguments raised before this Court indicate that the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany to mean "a company as defined in section 617 of the Companies Act, 1956." Section 617 of the Companies Act, 1956 provides that a Government company means "any company in which not less than 51% of the paid-up share capital is held by the Central Government or by any State Government or Governments partly by the Central Government or partly by one or more State Governments and includes a company which is subsidiary of the Government company". Thus, holding of only 51% or more of the shares in a company either by the Central Government or State Government makes a company a Government company. Chapter II of the Act provides for acquisition of the undertakings in India of Esso companies. Section 3 provides for transfer and vesting in the Central Government of the undertakings of Esso in India. Section 4 provides for general effect of vesting. Section 5 provides for the Central Government to be lessee or tenant under certain circumstances. Section 6 deals with removal of doubts. For the present purpose, section 7 of the Act is important and it reads as follows : "7( 1 ). Notwithstanding anything contained in sections 3, 4 and 5 the Central Government may, if it is satisfied th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer the undertaking to a Government company as defined under section 617 of the Companies Act, 1956. If the Act intended that the undertaking so vested in the Government company can be transferred, wholly or partly, to any company other than a Government company, there certainly would have been an indication to that effect in the Act itself. The question, therefore, is whether absence of specific provision as contained in the Banking Companies (Acquisition Transfer of Undertakings) Act or in the Coal Mines Nationalisation Act, 1973 that the shareholding shall always be held by Government, will give a different complexion to these provisions. When the provisions of the Act provide for vesting of the property of the undertaking in the Government or a Government company, it cannot mean that it enables the same being held by any other person, particularly in the context that the object of the Act is that the ownership and control of the petroleum products is distributed and marketed in India by the State or Government company and that thereby so distributed as best to subserve the common good. The argument that there is no specific provision in the Act as contained in the Banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, the argument begs the question which is put in issue before us. 11. Again accretions to the Government company s assets subsequent to acquisition of the undertaking is an irrelevant factor in the context of the question we are considering. 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. 12. The debate as to whether a privatization law is necessary has been going on all over the world. This aspect has been discussed by Pierre Guislain in his book entitled The Privatization Challenge published by the World Bank. The views of the learned Author are reproduced hereunder: "Whether a country needs to enact a privatization law or can do without one depends on several factors: to political situation and legal traditions of the country, the scope of its privatization program, and the nature of the enterprises to be privatized. Two different issues have to be addressed; does legislation need to be enacted to authorize or facilitate privatization, and if so, should the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramme has been carried out in Argentina, Mexico and Brazil. In these countries, Privatization Acts have been enacted and numerous routes are adopted to achieve privatization, some of which are illustrated below : 1.A public offering of shares combined with a listing on the stock exchange has brought share ownership to many millions of people and have been the mechanism through which the Government s desire to widen share ownership has been brought to fruition. 2.A trade sale to another private sector company or to a consortium and such a transaction is inherently more private than a share offering and some of the privatizations executed in this manner have faced some criticism for being insufficiently open to public examination and debate. 3.A management buy-out where the public sector entity s manage-ment team combine together to raise finance and, in conjunction with the financier, purchase the business through a newly formed vehicle company. 4.A private placing of shares in a business with a group of investors. 5.Making State assets available under concession so that the assets may then be worked out by the concessionary. 6.Special features of making provision for ..... 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