Centre arms itself with a legal strategy to defend PSUs' disinvestment

The move comes after several petitions challenging the policy were filed across the country

The Centre has armed itself with a legal strategy to defend privatisation of public sector undertakings (PSUs). This comes amid a barrage of legal cases being filed to stall the government’s strategic disinvestment move, said a senior government official.

The government’s strategy is to defend privatisation cases on grounds that economic policy matters — including divestment — are not amenable to judicial review and remain under the exclusive purview of the Centre.

This is based on the Supreme Court’s judgment in the Balco case that held that matters of economic policy, including “complex economic matters” such as divestment, are not within the court’s domain.

This comes on the back of several petitions being filed across the country to derail the Centre’s divestment drive.

“The government’s stand is clear with the announcement of the new Public Sector Enterprises (PSE) policy that bare minimum presence will be maintained in strategic sectors. And, it is ready to defend this policy decision,” said the official.

Strategic sectors include atomic energy, space, defence, transport, telecommunications, power, petroleum, coal and other minerals as well as banking, insurance and financial services.

He added, “The number of cases filed in courts has increased, and the officials at the department of investment and public asset management (DIPAM) are involved in defending the government’s stance.”

Citing the example of the initial public offering (IPO) of Life Insurance Corporation of India (LIC), the official said, “Days before filing the draft red herring prospectus (DRHP), a petition was filed to block the IPO. This was one of the reasons that led to a delay in filing of the DRHP.”

Not just LIC, the same challenges cropped up for Air India and Central Electronics, the official said.

In cases where litigation is initiated by employee unions, like in Central Electronics, the view is that workers/employees do not have vested rights in the employer company, whether it continues to be a government company or not.

The view has been formed through past court rulings that there is no principle of natural justice that requires prior notice to persons who are generally affected by an economic policy decision of the government.

The Centre is learnt to have told the court in one of the cases that the government is a shareholder in a PSU, according to the Companies Act, and a shareholder has the right to transfer its shares.

Also, it said employees have to accept the right of shareholders and directors to run the affairs of a company in accordance with the law. Employees cannot claim continuous consultation at different stages of the divestment process if it is carried out without contravening the law.

The Centre said it’s an incidence of service for an employee to accept the decision of the employer, which is not contrary to the law. Even a government servant, having employment protection under the Constitution, has no absolute right to remain in service, it added.