Balco revisited

By Rahul P. Dave

A PANELIST in a television programme recently expounded the view that the government of the day could, presumably by executive action, privatise any government company without taking any kind of approval or passing any legislation. Not only is this an erroneous approach, but it also appears that in the heat and dust of the BALCO controversy some important Constitutional and Company Law issues have been overlooked.

Privatisation is the process of denationalisation, which does not appear to fit comfortably within the four corners of our Constitution. The Constitution, as a whole, clearly supports the process of nationalisation. The introduction of the word ``Socialist'' in the Preamble to the Constitution initially posed somewhat of a problem in legal interpretation. This confusion was caused by the vagueness of the word which was ultimately found to mean an elimination of inequality of income, status and standards of life. Though it has been held that the Preamble cannot be regarded as a source of power, its role being limited to explain any ambiguity, it has also been held that the Preamble must be given a liberal interpretation as it embodies the philosophy behind the Constitution.

However, the Directive Principles of State Policy found in Part IV of the Constitution have, from its inception, charted a path to a welfare state. These DP's are not enforceable by any Court but are nevertheless fundamental in the governance of the country. Article 37 further provides that it is the duty of the State to apply these principles in making laws. Article 39, found in this part, is the one with which we are concerned, and this calls upon the State to direct its policy, in particular, towards securing that the ownership and control of the material resources of the community be so distributed as best to subserve the common good, and further, to secure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

On the other hand, the Constitution is almost silent when it comes to denationalisation. The only flicker of hope is contained in Article 298 which vests the Executive with the power to carry on any trade or business and acquire, hold and dispose of property and make contracts for any purpose. Even this power is subject to laws made by Parliament.

BALCO was set up as a Government Company in 1965 at Korba, M.P. A Government Company is defined in the Companies Act, 1956 as a company in which the Government holds not less than 51 per cent of the paid-up share capital. The Government is hence the majority shareholder in every such company. Since companies in this country are run in accordance with the majority principle, this means that it is the Government that holds the reins of management in every Government Company. The right of the shareholder holding a controlling interest in a company has been held to be a valuable right, which ought not to be compromised without receiving valuable consideration.

The shares of the Central Government are usually held in the name of the President for and on behalf of the people of India. The articles of association of a Government Company most usually contain a clause enabling the President to give directives to that company. The audit of the company is to be carried out by an auditor appointed by the Government on the advice of the Comptroller and Auditor General of India (CAG). The CAG has substantial powers to conduct supplementary audits and comment upon or supplement the audit report. The annual report on the working and affairs of a Government Company is laid before both Houses of Parliament together with a copy of the audit report and any comments made thereon by the CAG.

Parliament is always closely concerned with the affairs and well- being of every Government Company, as it should be, since these are the assets of the people and it is the representatives of the people who must be involved in any major decision pertaining to such assets. In the process of denationalisation the question arises who shall divest the people of India of their assets, and the answer can only be that it is the representatives of the people who have such power and no one else. Divestment is not part of ordinary trade or business and cannot be carried out by the Executive on its own. In this view of the matter, any divestment by the Government in respect of any Government Company has therefore to receive prior approval of Parliament.

In the BALCO case, divestment faces an additional problem, which is by no means unique to BALCO, amongst Government Companies. In 1984, the undertaking of the Aluminum Corporation of India Limited at Bidhanbag, West Bengal, was acquired by an Act of Parliament (Act 43 of 1984) by the Central Government and by further notification issued thereunder, vested in BALCO. The Preamble to that Act of Parliament is itself a detailed policy statement as to why the acquisition was necessary. It was done specifically to give effect to the policy of the State towards securing the principles specified in Clause (b) of Article 39 that is to secure ownership and control of material resources of the community so that these are distributed as best to subserve the common good. Another reason stated therein is to secure the continued employment of the workmen employed in that undertaking. Such an Act of Parliament is given special protection under Article 31C of the Constitution, since it is a law giving effect to the policy of the State towards securing one of the Directive Principles. It is a point worth noting that in this Act, BALCO is defined as a Government Company within the meaning of the Companies Act. In other words, Parliament has given statutory recognition to the fact that BALCO is a Government Company in which the shareholding of the Government cannot fall below 51 per cent, at least not without statutory amendment. BALCO's disinvestment, therefore, should have been preceded by an Act of Parliament amending the 1984 Act. What amendment, is a moot question. Obviously the acquisition cannot be revoked, but to hand over the acquired undertaking to a stranger, or to provide that BALCO need no longer be a Government Company would fly in the face of the Directive Principles. In any case, this would have meant taking Parliament into confidence prior to the disinvestment and having the law amendment by Parliament before the Government signed its contract with Sterlite. This, as we have seen, was not feasible, as the Government does not command a majority in the Rajya Sabha.

As things stand, it seems that the Government's contract with Sterlite is ultra vires the 1984 Act and is in serious jeopardy unless with legal ingenuity this contract can be covered under one of the more general legislation, such as a Finance Act. If not, then to make matters worse, it cannot even be argued that the Government is estopped from denying the contract and must go through with it, since there is no estoppel against statute.

Whatever the outcome, the BALCO case will serve as an example to other Government Companies in which the shareholding of the Government has fallen below 51 per cent and in which the Government has compromised its controlling interest without bringing the matter before Parliament and without receiving valuable consideration.

(The writer is a Supreme Court advocate.)

Send this article to Friends by E-Mail

Section  : Opinion
Previous : Whose morality?
Next     : The foodgrain paradox