Reservation in the Constitution

Reservation is enshrined in the Constitution as part of its basic structure[2] and is hierarchically among the very first-level principles of separation of powers, of equality, and fundamental rights.[3]  Through various enhancing legislations, Reservation has become the principal way in which the state acts to overcome past injustices and bring about equality. The Directive Principles provide the philosophical justification,[4] and the sections lay out reservation as the core instrumentality of the state. Reservation was to be valid in the state, its parastatals, and in entities where the state had substantial ownership/control, at all levels of government—Centre, State, and Local (which came about since the 73rd and 74th Amendments of the Constitution).[5] The issue of whether reservation is necessary to uplift and bring to equality the depressed castes is another matter and does not concern us here, since the Constitution has enshrined reservation in education and in jobs as the objective, and not only as the means in its drive for equality.

Historically, this meant the general government, subordinate offices of the government, regulatory entities, all PSUs, nationalized enterprises, hereinafter (S&EOS – State and Extended Organisations of the State). Reservation was seen as an ascendant provision that is to be increasingly extended. Thus far the private sector has been kept out of the same. But as some of these got nationalized—banks, coal companies, textile companies—reservation was logically extended to them, so that the provision of reservation, upon the state and state-controlled organisations (even those originating in the private sector), was firmly established. The issue of reservation having a modus operandi going beyond the S&EOS could be conceived, but even in principle, there is no conception of the idea of reservation without reference to a set of organisations.

Primacy of reservation

Subordinate legislations, or rules, or executive actions, or contracts entered into by the state or its parastatals cannot override or negate the Constitutional requirement of reservation based on the notion of reduced shareholding less than 50%. While it may absolve the entity from many other provisions earlier applicable to the entity, it would not absolve the entity from reservation since reservation is fundamental to the Constitution,[6]  and its voiding would be tantamount to a change in the Constitution, which would have required a 2/3rds majority in Parliament.[7]

Thus, it is illegal to have not included in the many transfer agreements in the privatization of S&EOS the provision of reservation. While generally transfer agreements provide for upholding worker/employee benefits and earlier privileges, thereby being in adherence with continued consistency in the terms of employment as required by labour laws,[8] the non-inclusion of reservation in these agreements is a violation of the Constitution.

Less than 50% cannot be a demarcation

The executive has taken shelter under the notion that less than 50% shareholding would free the entity being privatized from government control. There is no basis for such a hard rule or threshold (and specific to shareholder entities) in the Constitution. Here, there are two issues. Article 12 of the Constitution, which lays out the instrumentalities, essentially provides for a multifactor approach where control, purpose, monopoly, and continued financial accountability to government, among other elements, with judicial interpretation being important when there is disagreement.[9] The other issue is of change—what goes through and what does not go through when an organization is changing its owner/controlling entity. Principles of justice demand that employees cannot have an explicit reduction in their rights, or even sections privileged to employment advantages arising out of reservation, to a loss of that prevliage, in the change of form due to privatization, even when other changes are possible, such as the private party being free to carry out businesses in new ways not earlier carried out in the earlier form and control.

However, in this interpretation, there is an illegality. If the transfer is done without continued reservation there would be violation of the Constitution in deed and not only in spirit. Technically, the only way to avoid reservation would be for it to wind up and close fully the enterprise/organization in question, and allow a new private entity to emerge into its product-market space, without the possible many other privileges (land under the use of eminent domain based land acquisition, monopolies and concessions, and ownership of natural resources granted being automatic) that the disbanded entity would have enjoyed.

No cross-adjustments possible

Since there is a continued existence of the organization in form and in content (most certainly), and if in form there is restructuring manipulation to mask the continued existence, then the notion of penetrating the veil of human organizations would nullify the form. There is no way the "Transfer Agreements" could have been silent on reservation. It would have to be explicit on both marginal employment and on the existing employment, ensuring reservation in both to the fullest as in the existing law.

Reservation was meant to be applied at the general government level and at the level of every distinct organization within the set of S&EOS, with no cross-adjustments being made across organisations. Thus, there is no possibility of the government taking on the role of carrying out the reservation in the hitherto privatized entity either, either by having in its employment a category of reserved employees (above government's own required numbers) to make up for the loss of reservation, or by transferring that number to another PSU within government, or even to another privatized entity.

This is because the provision of reservation, being fundamental to the Indian Constitution almost on par with "equality," cannot be thus negated in both form and content by lower-down "transfer agreements" and would necessarily require a 2/3rds majority.[10] Thus, privatization can be accused of having violated the Constitution and bringing in provisions not possible without amending the Constitution.