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Disinvestment without scrapping these laws could trip up Modi's grand economic plans

So the government is all set to kickstart the disinvestment programme, which was all but stalled during the ten years of United Progressive Alliance (UPA), by offloading its remaining 29.5 per cent stake in Hindustan Zinc Ltd (HZL).

But could a legal snag trip it up? It could.

Someone could challenge the disinvestment in court saying the company was incorporated though an Act - the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976 - and so the government needs a green signal from Parliament before going ahead.

No, the fear is not far-fetched; it has happened before. That is how the planned privatisation of Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) was stalled - and eventually scuttled - in 2003. An NGO, the Centre for Public Interest Litigation (CPIL), filed a public interest litigation (PIL) raising this issue and the Supreme Court agreed. "We allow these petitions restraining the Central Government from proceeding with disinvestment resulting in HPCL and BPCL ceasing to be Government companies without appropriately amending the statutes concerned suitably," the Supreme Court said on 16 September 2003.

HPCL was formed after the nationalisation of Esso Eastern through the ESSO (Acquisition of Undertaking in India) Act, 1974, and Caltex Oil Refining India was merged in it in 1977 following the enactment of Caltex (Acquisition of Shares of Caltex Oil Refining India Limited and all the Undertakings in India for Caltex India Limited) Act, 1977. BPCL is the nationalised avatar of Burmah Shell after the enactment of the Burma Shell (Acquisition of Undertaking in India) Act, 1976.

It doesn't matter that HPCL and BPCL were cases of outright privatisation while the government is only selling its residual stake of less than 30 per cent in an already privatised HZL. According to this report in the Economic Times, the mines ministry raised the same red flag as recently as last year when the UPA government proposed the HZL stake sale. The Narendra Modi government may not have loose cannons within it, as the UPA did, but what is to stop some CPIL-clone from knocking on the court's doors?

It isn't just HZL. An initiative called The 100 Laws project, a collaborative initiative by 15 lawyers, economists, public policy analysts and domain experts, has listed 20 nationalisation laws passed between 1972 and 1976, which could queer the pitch for any disinvestment (even an NDA government doesn't use the P word anymore, first used by Yashwant Sinha in NDA 1) or even restructuring programme. These 20 laws are part of 100 laws the group has identified for outright repeal. (Disclosure: this author was part of this initiative.)

The Acts relating to HPCL and BPCL are still around as is the Hindustan Tractors Limited (Acquisition and Transfer of Undertakings) Act, 1978, even though between 1999 and 2001 the Mahindra and Mahindra group acquired all of Hindustan Tractors and renamed it Mahindra Gujarat Tractors Ltd.

The nationalisation acts provided only for the transfer of all assets, rights and interests of a company to the central government. They do not get into the nitty-gritty of how these companies are to be run and the management and operations of the acquired company are largely conducted under the Companies Act and through directives issued by the government from time to time. So the objective of these Acts was met once the acquisition was completed, and the only value they have is a nuisance value.

There's an army of bleeding hearts out there who want the public sector to continue and become stronger and they are constantly on the hunt for ways to stall not just disinvestment but even closure and restructuring of public sector undertakings. The Narendra Modi government, regrettably, is sticking to the UPA script of only stake sales and no privatization. But the continued existence of these laws will only give these elements a handle to block even piecemeal disinvestment. At one point, there were as many as 96 disinvestment related lawsuits, according to a 2007 white paper on disinvestment.

The repeal of these nationalisation acts will not affect the completed acquisitions in any way. The 100 Laws project found that Section 6 of the General Clauses Act 1897 ensures that a repeal does not affect any action properly taken under an Act, or any rights, liabilities or legal proceedings under the Act.

So why not just repeal these laws ahead of disinvestment just to be on the safe side? It has been done before. The Tyre Corporation of India (Disinvestment of Ownership) Act, 2007 was passed to facilitate the privatisation of the company. So why not do the same in the case of the others as well.

Arguing that this is not necessary since privatisations/disinvestments have happened before in spite of the nationalisation acts is taking the danger lightly. When the BPCL-HPCL privatisation was challenged, there were earlier cases of privatisation of companies that were formed through nationalisation legislations - Maruti Udyog and Balco. The Supreme Court, however, noted that since those two cases had not been challenged, they were on a different footing.

That's the danger of leaving things to chance. That's why wholesale repeal of these nationalisation acts is needed.

Seetha is a senior journalist and author

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Updated Date: Oct 10, 2014 18:05:11 IST