The Attorney-General's legal opinion that the government could go ahead with the disinvestment of public sector oil companies HPCL and BPCL without parliamentary approval goes against the object of `common good' that is set out in the preamble to the Acts that facilitated their creation.
THE Attorney-General Soli Sorabjee's opinion on the disinvestment of the oil public sector undertakings (PSUs) - Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited - comes as no surprise. For more than a month, many people, particularly operators of the stock market, have been held in suspense awaiting his opinion, on which hanged the sale of the oil PSUs with assets worth tens of thousands of crores. His opinion, as reported in the newspapers, that the sell-off can proceed without the approval of Parliament, brings to memory his earlier opinions. Having been a student of the AG's opinions, and having written at least two earlier articles on them, I consider myself to be somewhat of an expert on the subject.
But first let us examine his present opinion. The occasion for this opinion arose when the government was confronted by the Opposition in Parliament some months ago about the sell-off of the huge profit-making oil PSUs, on the basis that they were created by Acts of Parliament and that, therefore, they cannot be sold without parliamentary approval. The AG has now given an opinion that the parliamentary enactments by which the original private companies had been nationalised impose no impediment upon the government if it wants to sell off the companies or their shares to private hands. Thus, according to the AG, the government can privatise the oil PSUs without parliamentary approval.
Both the parliamentary enactments (The Esso Acquisition of Undertakings in India Act, 1974, and the Burmah Shell Acquisition Act, 1976) by which these private oil companies were nationalised, begin with a preamble, which says: "And whereas it is expedient in the public interest that the undertakings in India of Esso Eastern Inc. (Burmah Shell in the other Act) should be acquired in order to ensure that the ownership and control of the petroleum products are distributed and marketed in India by the said company are vested in the state and thereby so distributed as best to subserve the common good." The preamble clearly spells out the legislative policy of the enactments and the objective of nationalisation. It says that the reason for nationalisation is to ensure that the ownership and control of the companies, and indeed the distribution of petroleum products in India, must be "vested in the state and thereby so distributed as best to subserve the common good". Yet the AG says that the government can undo this and sell the PSUs so created by these Acts to private persons without parliamentary approval.
Section 7 of these Acts further provides that after having taken over the assets of these oil companies, the Central government could direct that these assets shall "instead of continuing to vest in the Central government, vest in a government company". A government company has been defined under the Companies Act as one in which the government has at least 51 per cent ownership or shares and thus controls the management of the company. Despite the express mandate of the Acquisition Acts that the assets of the nationalised oil companies could only be vested in a government company, the AG says that the government could divest its shareholding in the companies so as to transfer the control of the companies to private parties. All this without parliamentary approval.
It is well settled in our constitutional scheme that all parliamentary Acts and mandates bind the executive. Any executive Act that violates any express or implied mandate of Parliament, is unconstitutional and void. The legislative mandate of the Acquisition Acts of these oil companies could not be clearer. The companies were nationalised and their assets vested in the state to ensure that their "products were so distributed as best to subserve the common good", as set out in the preamble of the Acts. Yet the AG says that since these companies are registered under the Companies Act, the government can sell its shares to private parties just like any private owner of shares. Thus, according to the AG, the government could have sold off the PSUs even immediately after they were nationalised by the parliamentary enactments. Or, in other words, it was always open to the government to undo the legislative intent of the enactments by just selling back the shares of the PSUs so created even to the very same private companies whose assets were acquired. Such is the opinion on the basis of which the government proposes to sell off the controlling interest in highly profitable PSUs having public assets of tens of thousands of crores.
IT has thus become necessary to remind ourselves of the two controversial opinions that the same AG gave the government just over two years ago. He gave two contradictory opinions on the legality and financial propriety of huge concessions that the government proposed to give to private telecom operators ("Conflicts and interests", Frontline, October 13, 2000). The issue there was whether the government could legally waive the contracted licence fee payable by these operators and migrate them to a revenue-sharing arrangement. In his first opinion, he categoricallystated that such a change would be an unjustified give-away to these operators, that it would be perceived as putting a premium on defaults, and that it would be vulnerable to a successful legal challenge by unsuccessful bidders. However, within five months, he gave another opinion, which completely contradicted his earlier one. In this, he justified the waiver of licence fee, and the migration of the private operators from a licence fee system to a revenue-sharing system both legally and financially by referring to the financial hardships faced by private operators. The Comptroller and Auditor-General (CAG) of India, in his report on this matter, rubbished the AG's opinion by pointing out that the actual number of subscribers of cellular licensees (who had committed the bulk of the defaults), overran the estimated number by 2-9 times in each of the four metropolitan cities in the first two years of operation. The CAG also berated the government for having used the AG's opinion to give-away more than Rs.3,000 crores to private operators, since the AG's opinion was more on financial issues on which he was not competent to render an opinion.
THE AG's other opinions that I have had the occasion to write about (Frontline, October 10, 2000) were in respect of the Hindujas' power project at Visakhapatnam. Initially, violating a rule of the government, which prohibited law officers from advising a party in the matter in which they may be called upon to advise the government, he went on to give an opinion to the Hindujas in precisely these circumstances. He had said that the Hindujas, in order for the counter-guarantee to be effective, need not adhere to the conditions contained in the preamble of the guarantee issued by the Government of India. What he did thereafter at a meeting at the London office of the Hindujas' solicitors was simply shocking. This meeting was also attended by the prospective lenders to the Hinduja project who needed a certificate from the Government of India assuring them of the effectuation of the guarantee of the government.
The AG went on to advise the Hindujas to "facilitate the request by the Ministry of Power and the Ministry of Finance for a consultation with the AG". He further advised that, "this is probably best done through the Ministry of Law who he had observed to be particularly helpful in trying to find ways of resolving the current difficulties." The minutes of this meeting show the AG to be virtually conspiring with the Hindujas about how he would use his office to get the government to issue the required certificate, in a manner so as to avoid the government undertaking a due diligence scrutiny of the project. The minutes recorded that the AG "went on to explain that one of the problems the GOI (Government of India) is having is that they are concerned that the various attempts at clarifying this issue would result in them having to carry out a detailed due diligence on the underlying project. It was confirmed to him (AG) that this was not the intention and indeed, from the sponsors perspective, was also undesirable." The minutes further recorded that the AG "said that he would then consider these and form an opinion as to whether any of the certificates could be provided by the Ministry of Power without placing themselves in a position of needing to carry out due diligence. He would then advise the MOP accordingly, and he would hope that they would follow his advice and issue the certificate required."
The AG thus advised the private party in a matter where he knew that he would be called upon to give advice to the government. He in fact went on to advise them to facilitate a request from the government to seek his advise, so that he could advise the government to issue the certificate required by the private party, by avoiding a due diligence scrutiny of the project by the government. There cannot be a more serious case of breach of trust by the top law officer of the government, who is supposed to be an independent constitutional authority.
IT is in the light of this background that the AG's latest opinion is not surprising. His opinion is in tune with the line taken by Disinvestment Minister Arun Shourie, who has been arguing that since the oil PSUs are companies registered under the Companies Act, the sale of their shares to private companies would not need parliamentary approval. There are powerful forces at work pushing the "big ticket privatisation" as the sell-off of the oil PSUs is being called. Most of the big operators of the stock market are also greedily eyeing the huge public assets set to fall in private laps. The mood of the entire stock market seems to depend on whether these "reforms" would go through. It is in these circumstances that we need to remind ourselves of what Joseph Stiglitz (former Chief Economist of the World Bank and the Clinton Administration, and winner of the Nobel Prize for Economics in 2001) has said in his recent book Globalisation and its Discontents (Penguin Books, 2002). Stiglitz points out how privatisation has helped create private monopolies, increased corruption and destroyed the economies of most countries where it was taken up in a big way. He says, "perhaps the most serious concern with privatisation, as it has so often been practiced, is corruption. The rhetoric of market fundamentalism asserts that privatisation will reduce what economists call the "rent-seeking" activity of government officials who either skim off the profits of government enterprises or award contracts and jobs to their friends. But in contrast to what it was supposed to do, privatisation has made matters so much worse that in many countries today privatisation is jokingly referred to as "briberisation".
If a government is corrupt, there is little evidence that privatisation will solve the problem. After all, the same corrupt government that mismanaged the firm will also handle the privatisation. In country after country, government officials have realised that privatisation meant that they no longer needed to be limited to annual profit skimming. By selling a government enterprise at below market price, they could get a significant chunk of the asset value for themselves rather than leaving it for subsequent officeholders. In effect, they could steal today much of what would have been skimmed off by future politicians. Not surprisingly, the rigged privatisation process was designed to maximise the amount that the government Ministers could appropriate for themselves, not the amount that would accrue to the government's treasury, let alone the overall efficiency of the economy. As we will see, Russia provides a devastating case study of the harm of "privatisation at all costs". It is this significant chunk of the huge asset value of these oil companies that is being greedily eyed by the private sector and those who control this government. That is why the resort to the tested stratagem - "Get the opinion of the AG". Such being the state of our polity and its institutions, only an awakened and proactive citizenry can save this country.
Prashant Bhushan is a lawyer practising in the Supreme Court of India.
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