A Bench of Justices S Rajendra Babu and G P Mathur said, "The government is restrained from going ahead with the disinvestment process for HPCL and BPCL."

The government had resorted to disinvestment in the two cash rich dividend paying companies without seeking Parliament's nod despite the two companies were created by a law enacted by the law makers.

Two public interest petition each filed by the Oil Sector Officers Association (OSOA) and the Centre for Public Interest Litigation (CPIL) had challenged privatisation of the two companies on the ground that the government should have approached Parliament for enacting a suitable law for privatisation of the two companies which were in 1974 acquired through a parliamentary legislation.

Agreeing with the petitioners' contention, the Bench noted that the preamble to the Acquisition Act through which the HPCL and BPCL were made the government undertakings specifically stated: "In order to ensure that the ownership and control of petroleum products, distributed and marketed in India by the said company are vested in the State and thereby so distributed as best to subserve the common good".

Thus, the Act did not indicate that the government companies could be transferred, wholly or partly, to any company other than a government company.

Thus, the Bench said: "We find that on the language of the Act such a course is not permissible at all". The court said the policy of disinvestment was not under challenge, what was objectionable was the manner in which the two companies had been privatised by the government.

The court said the companies could be privatised only through repealing or amending the Act and the government could order disinvestment through an executive order.

The government, which currently holds a 51 per cent stake in HPCL, has proposed to offload 34.01 per cent stake to a strategic partner along with management control, while five per cent would be offered to employees at a concessional price.

Those in the race for acquiring this stake in HPCL include Reliance Industries Ltd (RIL). Other bidders for the country's second largest oil firm are British Petroleum, Kuwait Petroleum, Petronas of Malaysia, the Shell-Saudi Aramco combine and Essar Oil.

Suitors for the government's 34.01 per cent stake in HPCL began due diligence on August 5. RIL was the first firm to initiate the process and after it scrutinised the books and installations. British oil and gas major BP Plc visited the data room for the due diligence.

OSOA's counsel, F S Nariman, had said as the oil companies were nationalised through an Act of Parliament, the government, to uphold the parliamentary norms of governance, should have approached it with a Bill either to repeal the Nationalisation Act or modify it suitably to permit disinvestment through an executive order.

However, Centre's counsel Harish Salve said that under the Constitution it mattered little as to how a company was created as the law governing the PSUs - like Balco, BHEL and Maruti - were the same.