JANUARY 24, 2016

By TIOL Edit Team

The Supreme Court's (SC's) order restraining the Government from divesting its residual 29.5% stake in Hindustan Zinc Limited (HZL) implies a few important lessons in governance.

The first lesson is that the Executive must respect the law of land which it pilots through Parliament as specific enactments – be it a company-specific nationalization act or be it in Fiscal Responsibility and Budget Management Act (FRBMA).

The fiscal deficit management compulsions should not lead the Government into circumventing/violating the economic laws concerned or amending them with retrospective effect.

In the HZL case, SC has noted that the Government cannot be allowed to circumvent the relevant law just because it erred on this issue in the past when divesting majority of its shares in the company.

The apex court directed the Government to seek Parliament's nod to amend/repeal the relevant law before proceeding with the offloading of residual stake valued at about Rs 17,300 crore.

A news paper quoted SC bench that heard public interest petition (PIL) on HZL as saying "No divestment can happen in a public sector undertaking without Parliament amending the concerned statute."

The statute in this case is the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976, which repealed the original enactment, viz., The Metal Corporation of India (Acquisition of Undertaking) Act, 1966.

The original Act was enacted to acquire zinc smelter project which private sector company Metal Corporation of India (MCI) delayed due to funds shortages and defaulted in loans repayments. The 1966 law paved the way for vesting of acquired project in newly incorporated public enterprise HZL.

The 1976 law does not provide for any change in the ownership of HZL. When UPA was in power, the Mines Ministry mooted amendment of this law as prelude to divesture of residual stake in HZL. The Finance Ministry, however, reportedly felt that proposed amendment has become redundant as HZL was already privatized. UPA Government thus approved sale of residual stake in January 2014.

Modi Government merrily toed UPA line and proceeded with residual stake sale. Hence the SC's stay on HZL's residual stake sale.

The second lesson here is that successor Government should not turn blind eye to something patently wrong done by the previous regimes and embrace wrong decisions as legacy.

The previous regimes had violated 1976 law twice. First, when Naramsimha Rao Government resorted to sale of shares of public enterprises (PEs) in dribs and drabs. The Government had completed first transaction by disposing of as bundles of shares of different PEs in the first half of nineties just as a common man sells waste paper in bulk to radiwala. Second violation was committed by Vajpayee Government when it divested controlling stake in HZL in March 2002.

Both UPA and the present regime also did not factor in SC's ruling in September 2003 that controlling stakes in Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) could not be parted with without amending their respective nationalization act.

The third lesson here is that the Executive must not lower its dignity before the judiciary by repeatedly breaking the law and/or by overlooking the related judgments.

The fourth lesson for the Government is that it should act as a good team with no dominant ministry (Finance Ministry in this case) acting as big brother with hardly any accountability.

It is here pertinent to recall what a Member of Parliament stated in November 1966 while participating in a debate on MCI acquisition bill. The Government had introduced this bill as replacement to the law enacted in 1965 for MCI takeover. This followed Supreme Court upholding a high court verdict against the 1965 enactment.

Taking note of this fact, Mrs. Ammanna Raja, a Rajya Sabha member, had wondered: "why our Government does not work up a team, does not make use of its lawyers, its own Law Minister and Attorney General and take proper advice from them so that we do not have to be told by the Court that we have to pay so much to these contractors and others."

The last but not the least lesson is that SC's stay order should propel the Government into recasting the disinvestment policy especially keeping in view recommendations of fourteenth Finance Commission (FFC).

In its report released in February 2015, FFC recommended "that the enterprises be categorized into 'high priority', 'priority', 'low priority' and 'non-priority' in order to: (i) facilitate co-ordinated follow-up action by policy makers and (ii) provide clarity to public enterprises themselves on their future and to the financial markets about the opportunities ahead for them.

FFC also pitched for "transparent auctions" for the relinquishment of unlisted sick enterprises in the category of non-priority public sector enterprises."

We hope the Government would take a fresh call on disinvestment policy with an open mind.