Opinion and Caveat

Attorney General on HPCL & BPCL Disinvestment.

THE Government of India's `in-principle' decision to go ahead with the disinvestment of two profit-making and asset-rich government companies and reliance on the legal opinion provided by the Attorney General for India, Soli J. Sorabjee, without tabling that opinion in Parliament or otherwise making it public has engendered a serious confrontation in Parliament between the Opposition and the Government.

The government companies involved are the petroleum giants, the Hindustan Petroleum Corporation Ltd. (HPCL) and the Bharat Petroleum Corporation Ltd. (BPCL). Most recently, two National Democratic Alliance partners, the Samata Party and the Janata Dal (United), joined the ranks of the Opposition, comprising the Congress and Left parties, to attack the disinvestment move. There is basic opposition to the disinvestment move as well as resistance to the disinvestment of the two government companies without parliamentary approval or a statute change. The Opposition has argued that this is required by the 1970s Acquisition Acts.

With the Government taking shelter behind the Attorney General's opinion on the question of going ahead with the disinvestment, the demand has been made that the full opinion be tabled in Parliament and also that the Attorney General be summoned to explain his position to Parliament. The interesting question is: why are Disinvestment Minister Arun Shourie and his Cabinet colleagues fighting shy of tabling Sorabjee's opinion right away, so that everyone can read what that written opinion says? (It is worth recalling that, in his previous avatar as an intrepid journalist, Shourie rode high on the demand for `freedom of information' and `transparency'.) Fortunately, there are people in the establishment who believe in transparency and as a consequence, Frontline has gained access to the details of this opinion from unimpeachable sources.

The Attorney General's opinion is an eight-page document dated January 20, 2003. It starts out by indicating the sources of information and documentation that formed the background for the opinion. It sets out the relevant facts on the 1974 and 1976 Acquisition Acts by which Esso and Burmah Shell were nationalised (Caltex was nationalised in 1977 and subsequently merged with HPCL) and on the process through which two giant government petroleum companies, HPCL and BPCL, were created.

The opinion notes: "According to my instructions in view of the past experience and in the present economic context and orientation, Government of India has taken an `in principle' policy decision of disinvestments in both HPCL and BPCL. In order to effectuate the said decisions, the proposed mode of disinvestment in HPCL is by sale of shares to a Strategic Partner through a well-recognised and transparent process of competitive bidding and execution of a Shareholders Agreement with the Strategic Partner. In the case of BPCL, disinvestment would be by sale of its shares through a public offer in the open market (termed as an `offer for sale')." In both cases, disinvestment would be effected by "sale of equity shareholding and not by the sale of assets and properties of HPCL and BPCL." It was made clear to the Attorney General that "the assets and properties would continue to vest in HPCL and BPCL."

The opinion cites the Supreme Court's 2002 judgment in the Balco case as "categorically" holding that "a bona fide decision" of the Government to disinvest that was reached in "a fair and transparent manner" and was not in breach of any constitutional provision or statutory requirement was "beyond legal challenge." Then comes the key qualification by the Attorney General of the subject and scope of the opinion. This is spelt out in three paragraphs that will bear much expert and political scrutiny: "The sole question on which my opinion is sought is whether the `in principle' decision of the Government of India of disinvestment in HPCL and BPCL requires Parliamentary legislation or Parliamentary approval.

"My opinion is not sought about the legal merits of the ultimate decision of the actual course of action that the government may adopt to effectuate disinvestment in HPCL and BPCL. That would depend on the provisions of the Shareholders Agreement between the Government of India and the selected Strategic Partner and the terms and conditions that may be imposed and the modalities that may be devised for ensuring government control and voice in the management of HPCL and BPCL. In the absence of any concrete decision at present embodying the terms and conditions regarding sale of equity shareholding in HPCL and BPCL, the question of my giving an opinion on that aspect does not arise.

"As I have stated above, my opinion is sought on the limited question whether Parliamentary legislation or approval is a must to effectuate the `in principle' policy decision of disinvestment in HPCL and BPCL."

It is important to note that the Attorney General is making a clear distinction between the opinion he is giving on a "limited" question that he formulates for this stage of the disinvestment process and possible subsequent questions about "the legal merits of the ultimate decision" or "the actual course of action that the government may adopt to effectuate disinvestment in HPCL and BPCL." Interestingly, he cautions that his hypothetical opinion on those aspects "would depend on" the provisions of the Shareholders Agreement with the selected Strategic Partner, the terms and conditions that might be imposed, and the modalities that might be devised "for ensuring government control and voice in the management of HPCL and BPCL." Absent "any concrete decision at the present" on the terms and conditions of the proposed sale of equity shareholding in the two government companies, the Attorney General cautions, there is no question of his giving an opinion on "that aspect." Is this important qualification - or caveat - a source of embarrassment or disquiet to the disinvestment enthusiasts?

As for the limited question, Sorabjee's opinion proceeds from the premise that HPCL and BPCL being government companies governed by the provisions of the Companies Act, 1956, they must transact business, hold meetings and conduct proceedings in accordance with the provisions of that Act. His finding is that the Memorandum of Association and Articles of Association of the two companies do not impose any requirement of parliamentary approval or approval for the sale of shares. Neither is there any provision in the Companies Act requiring parliamentary legislation or sanction for "decisions or actions of government companies whether it be of voluntary winding up or merger or amalgamation or disinvestment by sale of shares resulting in change of management." Further, the Board of Directors of the two government companies may take a "bona fide" decision for merger or amalgamation of their companies with other companies. They can also go in for "voluntary winding up." The only requirement is that these Board actions have to conform to the relevant provisions of the Companies Act. Actions not in such conformity can be "judicially invalidated on that score but surely not on the ground that Parliamentary legislation or approval was necessary to implement such decisions." The Attorney General cites a case in point - the merger of Caltex Oil Refining India Ltd. and HPCL without parliamentary legislation or approval.

The Attorney General states in his opinion that a careful examination of the provisions of the Esso, Caltex and Burmah Shell Acqusition Acts makes it clear that "the vesting of the properties and assets of the erstwhile oil companies in the Government of India and subsequently in HPCL and BPCL by virtue of the above notification, is absolute and unconditional." He adds that, unlike in some other legislation, there is "no express or specific provision" in the Acquisition Acts that prohibits "the business of production, refining and distribution of petroleum products by any public limited company or a private entity."

Raising the question whether there is any "implied prohibition" in the Acquisition Acts, he answers: "I think not." Generally speaking, prohibitions cannot be implied into legislation "except by necessary implication." In the absence of prohibitory provisions, such as the ones found in the Coal Mines Nationalisation Act and the Banking Companies Acquisition Act, "there would be no scope for importing any implied prohibition" in the Acquisition Acts.

Further, the Attorney General says, "the rule of prohibition by necessary implication could be applied only where a specific procedure is laid down for the performance of a duty" and "in the present case, there is no mandatory specified procedure laid down in respect of disinvestment of shares by the Central Government in HPCL and BPCL." Hence, for that reason also, "no implied prohibition against disinvestment in favour of a company or an entity other than a Government company can be read into the Acquisition Acts."

In sum, the Attorney General's opinion presents "the crux of the matter" thus. There is "no mandatory statutory requirement" in any of the Acquisition Acts that parliamentary legislation or approval is necessary for "the decision or action of disinvestment in HPCL and BPCL which would result in a change in management of the companies." The "mere fact" that the vesting of assets and properties in the HPCL and BPCL took place under parliamentary legislation, that is, the Acquisition Acts, "does not by itself and without more necessitate Parliamentary legislation or securing Parliamentary approval for effectuating the `in principle' policy decision of disinvestment in HPCL and BPCL."

The Attorney General observes in this connection that whenever parliamentary approval or sanction has been required, it has been specifically provided for in the legislation concerned. The Companies Act, the State Bank of India Act 1955 and the Reserve Bank of India Act 1934 are notable examples of legislation with such specific provision. In the Attorney General's view, it follows that "the absence of similar provisions in the Companies Act or the Acquisition Acts clearly indicates that prior or subsequent approval of Parliament is not required for the `in principle' policy decision of disinvestment in HPCL and BPCL resulting in change of management."

The Attorney General says that after analysing all aspects of the matter, he is of the opinion that "it is open to the Government of India in bona fide exercise of its executive power under Article 73 read with Article 298 [of the Constitution] to reach and implement the said decision." However, in the penultimate paragraph of his eight-page note, he reiterates the caution that his opinion is confined to the limited question and does not say anything about "the legal merits of the form and content of the actual decision of disinvestment in HPCL and BPCL."