In a major blow to privatisation programme, the Supreme Court today halted the divestment 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 G P Mathur said: "The government is restrained from going ahead with the divestment process for HPCL and BPCL."
Allowing two petitions filed by Centre for Public Interest Litigation and Oil Sector Officers Association, the Bench said the government could not go ahead with the divestment 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 divestment process termed the verdict as 'fatal' for the privatisation programme but Divestment Minister Arun Shourie was not available for comments as he is in Germany on an official assignment.
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.
Govt stops privatisation
Immediately after the pronouncement of the judgement by Justice Babu on behalf of the Bench, the divestment ministry directed the global advisors to halt the divestment process in the two PSUs.
When contacted, Divestment Secretary Dhirendra Singh said, "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 divestment 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 divestment sought by the petitioners saying it would finally decide the issue and not piece-meal.
The Centre had decided to proceed with the divestment 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 divestment 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 Apex 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.
The government had said the Acts nationalising banks and coal mines specifically provided that the government at all times shall hold not less than 51 per cent of the paid up capital but a similar provision was not there in the Act for nationalisation of oil PSUs.
Salve had said the shares of HPCL and BPCL were traded everyday in the share market and these companies themselves have sold refineries to private companies.
He relied on the Balco judgement saying these PSUs were all of one kind and the law was same for them, and in the changed economic scenario the government felt the public interest would be best subserved by privatising the oil PSUs.
The government said it was keeping a strategic 12 per cent shares in HPCL and 26 per cent in the BPCL even after divestment.
Over and above, it was planning to put a regulator to oversee the functioning of the company even after its privatisation, he added.
Appearing for CPIL, senior advocate Shanti Bhushan said the decision of the government to divest its shares in the PSUs struck at the root of the policy decision enumerated in the Parliamentray legislation acquiring the oil companies.
The government, which currently holds 51 per cent stake in HPCL, has proposed to offload 34.01 per cent stake to a strategic partner along with management control, while five per cent would be offered to employees at concessional price.
Those in the race for acquiring 34.01 per cent stake in HPCL include Reliance Industries Ltd. The other bidders for the country's second largest oil firm are British Petroleum, Kuwait Petroleum, Petronas of Malaysia, the Shell-Saudi Aramco combine and Essar Oil.