Lietuviškai
THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA
R U L I N G
On the compliance of the 31 August 1995 Government
of the Republic of Lithuania Resolution No.
1169-22 "On the Special Auction of Government
Securities" with the Constitution of the Republic
of Lithuania, Part 2 of Article 1 of the Republic
of Lithuania Law on State Treasury, Item 5 of
Article 21 of the Law on the Government of the
Republic of Lithuania, as well as Article 4 of the
Law "On Approving the 1995 State Budget of the
Republic of Lithuania and the Specifications of
Deductions into Budgets of Self-Governments and
Their Subsidies"
17 June 1997, Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the Justices of the Constitutional Court Egidijus
Jarašiūnas, Kęstutis Lapinskas, Zigmas Levickis, Augustinas
Normantas, Vladas Pavilonis, Jonas Prapiestis, Pranas Vytautas
Rasimavičius, Teodora Staugaitienė, and Juozas Žilys,
the secretary of the hearing - Daiva Pitrėnaitė,
the party concerned - Vytenis Gudelis, a state consultant,
and Robertas Martinkus, a state consultant, adviser for the
Prime Minister, both are the representatives of the Government
of the Republic of Lithuania,
pursuant to Part 1 of Article 102 of the Constitution of
the Republic of Lithuania and Part 1 of Article 1 of the Law on
the Constitutional Court of the Republic of Lithuania, in its
public hearing on 4 June 1997 conducted the investigation of
Case No. 1/97 subsequent to the petition submitted to the Court
by the petitioner - a group of the members of the Seimas of the
Republic of Lithuania - requesting to investigate if the 31
August 1995 Government of the Republic of Lithuania Resolution
No. 1169-22 "On the Special Auction of Government Securities"
was in compliance with the Constitution of the Republic of
Lithuania, Part 2 of Article 1 of the Republic of Lithuania Law
on State Treasury, Item 5 of Article 21 of the Law on the
Government of the Republic of Lithuania, as well as Article 4
of the Law "On Approving the 1995 State Budget of the Republic
of Lithuania and the Specifications of Deductions into Budgets
of Self-Governments and Their Subsidies".
The Constitutional Court
has established:
I
On 31 August 1995 the Government adopted Resolution No.
1169-22 "On the Special Auction of Government Securities" (the
said resolution was classified, it has not been published in
the official gazette "Valstybės Žinios", it was declassified by
the decision of the 19 March 1997 Government sitting,
Government sitting Protocol No. 12, Item 26). The content of
the resolution in question is as follows:
"In attempt to render support for the Vakarų Bankas and
the "Aurabankas" in solving temporary liquidity problems, the
Government of the Republic of Lithuania shall resolve:
1. On 1 September 1995, to organise a close auction of
short-term loan bonds under the following parameters of the
issue:
1.1. the number if the issue shall be 50062;
1.2. the maximum amount of the issue shall be 50 million
litas;
1.3. the term of the bonds shall be 63 days;
1.4. the nominal value of one bond shall be 100 litas;
1.5. the payment day for the purchased bonds shall be 1
September 1995;
1.6. the day of the repurchase of the bonds shall be 3
November 1996;
1.7. the uppermost margin of annual interest under which
claims must be satisfied shall be 26 per cent.
2. The Ministry of Finance must deposit up to 30 million
litas received for the sold Government bonds into the Vakarų
Bankas on condition that the latter shall guarantee the
returning of the deposit with its building which is at the
address: Gynėjų St 14, Vilnius, while the remaining portion of
the means received for the sold Government bonds must be
deposited into the "Aurabankas". The means shall be deposited
in the said banks for the term not exceeding 4 months,
receiving no less than 27 per cent of annual interest."
The petitioner requests to investigate whether this
resolution of the Government is in compliance with Parts 1 and
2 of Article 128 of the Constitution, Part 2 of Article 1 of
the Republic of Lithuania Law on State Treasury, Item 5 of
Article 21 of the Law on the Government of the Republic of
Lithuania, as well as Article 4 of the Law "On Approving the
1995 State Budget of the Republic of Lithuania and the
Specifications of Deductions into Budgets of Self-Governments
and Their Subsidies".
II
The petitioner grounds his request on the following
motives.
According to Part 1 of Article 128 of the Constitution,
decisions concerning state loans and other basic property
liabilities of the state shall be adopted by the Seimas on the
recommendation of the Government. Part 2 of Article 128 of the
Constitution provides that procedures concerning the
management, utilisation, and disposal of state property shall
be established by law. Item 5 of Article 25 of the Law on the
Government consolidates the provision that the Government shall
hold, use and dispose of the state property according to the
procedures and situations established by law. Part 2 of Article
1 of the Law on State Treasury provides that the money
resources which are disposed of by the Government may only be
used for financing the needs established by the law. Article 4
of the Law "On Approving the 1995 State Budget of the Republic
of Lithuania and the Specifications of Deductions into Budgets
of Self-Governments and Their Subsidies" granted the right to
the Government to take loans only for financing the 1995 state
budget deficit.
The petitioner alleges that at the time when the
Government adopted the aforesaid resolution, the Constitution
and aforementioned laws had not granted the right to the
Government to adopt the decisions set forth in the resolution,
therefore, in the opinion of the petitioner, there exist
grounds to maintain that the Government exceeded its competence
and that its 31 August 1995 Resolution No. 1169-22 "On the
Special Auction of Government Securities" contradicts the
Constitutions and the laws.
In the course of the preparation of the case for the court
hearing, the representative of the petitioner J. Razma noted in
writing that on 31 August 1995 the Government adopted the
resolution on a state loan regardless of the proposals of the
Budget and Finance Committee of the Seimas set forth in Paper
No. 109-14-201 of 19 June 1995 for the Government to prepare
and submit draft legal acts to the Seimas for deliberation
wherein the establishment of the amount of state internal and
foreign debts, as well as their legalisation, coping with and
other questions linked with basic property liabilities of the
state were regulated. The Government neither took account of
these recommendations, nor did it move that the Seimas adopt a
decision concerning the 50 million litas state loan.
III
In the course of the preparation of the case for the court
hearing, R. Martinkus and V. Gudelis, the representatives of
party concerned - the Government - noted in their explanations
that, in their opinion, the most important fact is that the
Government of 1995, under the cover of the laws then in force,
as well as ostensible necessity to strengthen commercial banks,
in fact covered embezzlements of certain private persons which
had been made in the commercials banks "Aurabankas" and Vakarų
Bankas which were indicated in the disputed resolution of the
Government. This was confirmed by subsequent events: the means
allotted for the said banks by the Government and officially
registered as deposits were dispensed, while the deposits
themselves were not returned. They are of the opinion that, in
adopting the disputed resolution and assessing the actual
condition of the said banks, it was practically impossible for
the Government not to foresee such a destiny of the deposits.
Another aspect of this problem is the fact that state means
were embezzled in attempt to make use of then valid laws and
other legal acts as a cover.
The representatives of the Government called one's
attention to the fact that on the day of the adoption of the
disputed resolution the state held shares for only 39, 000 Lt
in the Vakarų Bankas and not a single share in the
"Aurabankas". The deposit put with the "Aurabankas" was
capitalized - converted into shares of the stock company Turto
Bankas which was undergoing the procedure of being established.
During the process of judicial investigation the
representatives of the party concerned explained that the Law
on Approving the State Budget of 1995 permitted the Government
to take a loan for financing the state budget deficit. The
wording of the disputed resolution of the Government to
organise a purposive issue of Government loan bonds in attempt
to render support to commercial banks is not a correct one. One
might say, that it is for this that the said Government
resolution contradicts the aforesaid law. The representatives
of the party concerned noted that the money received during the
auction, after they had been in the deposits of the commercial
banks, were allowed to be used for financing the state budget
deficit, therefore, in their opinion, the Government resolution
must have consisted of 2 parts: the first - on the issue of
Government loan bonds for the purpose of financing the budget
deficit, the second - on the right to deposit the received
money in the banks providing the shortage of the budget does
not arise.
The representatives of the party concerned also noted that
the deposit of state means in a bank is in itself not its
financing. By placing the deposits, the Government was formally
not financing the Vakarų Bankas and "Aurabankas", however, in
reality the matters happened to be otherwise. Both aforesaid
banks had negative capital, as well as big debts, therefore,
when the disputed Government resolution was being adopted, it
was evident that the deposits would not return. The Government
is entitled to and must strengthen banks, however, it must do
so only in pursuance of laws. In the case at issue the state
means had been used not rationally. There were a number of
violations in implementing the said Government resolution. The
state has incurred losses due to the disputed Government
resolution.
In the opinion of the party concerned, the Government
adopted a classified resolution on support for commercial banks
as it did not want to publicize the problems of banks to which
the public was very sensitive.
The Constitutional Court
holds that:
1.1. The fundamentals of legal regulation of state
revenues and state expenditure are consolidated in the chapter
of the Constitution entitled "Finances, the State Budget". Part
1 of Article 128 of this chapter stipulates: "Decisions
concerning State loans and other basic property liabilities of
the State shall be adopted by the Seimas on the recommendation
of the Government."
According to this norm of the Constitution, the Seimas
establishes the amount of the sum which is to be lent for state
investments or to finance certain needs by entitling the
Government to adopt respective decisions; the Seimas, on
recommendation of the Government, has also the right to adopt a
decision regarding extraordinary state loans or other basic
property liabilities of the State. Thus the norm of Part 1 of
Article 128 of the Constitution presupposes that the question
of state loans or other basic property liabilities of the State
must always be considered and decided on in the Seimas.
State loan is financial means (it may also be material
values, services) which are received under the name of the
state under loan agreements or other loan liabilities and which
are returned in respective (internal or foreign) currency. One
of the ways of reception of a state loan is sale of Government
bonds with the obligation of their subsequent repurchase. The
provision of the 31 August 1995 Government Resolution "On the
Special Auction of Government Securities" to organise on 1
September 1995 an auction of short-term loan bonds is a
decision on a state loan of 50 million litas.
The means of a state loan are state revenue, while
covering of loans is expenditure of the state budget. Part 1 of
Article 131 of the Constitution consolidates an exclusive right
of the Seimas in the sphere of the state budget: the Seimas
shall approve by law the state budget, i.e., the amount of
state revenue and that of state expenditure. Regulation of the
state budget is based on the principles of rational financial
planning, those of balancing the entirety of public revenue and
expenditure, and their qualitative and quantitative equalizing.
The financial control accomplished by the Seimas helps to
implement the aforesaid principles. Therefore, as a rule,
decisions concerning state loans are adopted by law when the
state budget is being approved. For instance, the Government
was given the right by Article 4 of the Law "On Approving the
1995 State Budget of the Republic of Lithuania and the
Specifications of Deductions into Budgets of Self-Governments
and Their Subsidies" to take loans for financing the deficit of
the state budget of 1995 providing it did not exceed 419,359
thousand litas (when the budget was being implemented, this sum
was increased).
1.2. The Government accomplishes executive power, its
powers are defined by the Constitution and laws. In its
activity the Government must proceed from the principles of
democracy, lawfulness and openness (Article 4 of the Law on the
Government). The lawfulness principle of the executive power
requires that its activity should be based on law. It means
that the Government must accomplish respective actions under
the competence granted to it and to restrain from actions which
are not allowed by legal norms.
Items 2 and 4 of Article 94 of the Constitution prescribe:
the Government shall implement laws and execute the state
budget. When the Government was implementing the Law "On
Approving the 1995 State Budget of the Republic of Lithuania
and the Specifications of Deductions into Budgets of
Self-Governments and Their Subsidies", it was permitted to take
a state loan only for the purpose provided for in the law -
financing the deficit of the state budget. According to Article
13 of the Law on Budgeting, appropriations from the state
budget shall be made for the following national needs:
education, culture, health care and sport; social welfare and
social relief; science and technological progress; regulation
of environmental protection and economic development; national
defence; maintenance of state power, state government and law
enforcement institutions; subsidies to self-government budgets;
public order and protection of society; development of the
Republic's foreign relations; the expenses of coping with the
state debt; increase of the working cash balance of the state
budget; compensation of expenses for application of fare
advantages for using public transport; implementation of other
measures pursuant to the laws of the Republic of Lithuania.
Thus it was possible to take a state loan in 1995 to
finance either the state needs enumerated in the Law on
Budgeting or other measures provided for in the laws in case
there existed insufficiency of means in the state budget.
1.3. The preamble of the disputed Government resolution
indicates that "in attempt to render support for the Vakarų
Bankas and the "Aurabankas" in solving temporary liquidity
problems", the Government shall resolve to organise a 50
million value close auction of Government loan bonds.
As it was mentioned, the Law "On Approving the 1995 State
Budget of the Republic of Lithuania and the Specifications of
Deductions into Budgets of Self-Governments and Their
Subsidies" entitled the Government to take a state loan for
financing the state budget deficit only. Thus it is only for
this purpose that auctions of Government securities were
permitted to be organised. Meanwhile, taking account of the
purpose of the auction of the issue of Government loan bonds
formulated in the preamble of the disputed Government
resolution, a conclusion should be drawn that this purposive
state loan was not designated for execution of the state
budget. There did not exist at that time any other decision of
the Seimas concerning a possibility to take a purposive state
loan to support commercial banks.
The Constitutional Court notes that a 50 million litas
issue of Government loan bonds is a basic property liability of
the state to repurchase the bonds by paying interest. When this
question was being decided, Part 1 of Article 128 of the
Constitution must have been followed. It means that the
Government was permitted to adopt a decision concerning such an
issue of securities provided there existed a respective
decision of the Seimas.
The argument that the right of the Government to adopt
independent decisions concerning state loan was proceeding from
the 6 October 1992 Resolution of the Supreme Council of the
Republic of Lithuania "On Commissioning the Government of the
Republic of Lithuania with Decision of Certain Questions" is
not grounded. The said resolution commissioned the Government
with "regulation by its decision the questions of [...] issue
and turnover of securities". This is a commissioning with an
establishment of corresponding legal rules of issue of
securities and their turnover. At the time of adoption of the
disputed Government resolution, the norm of the Constitution
concerning the competence of the Government as regards the
question of taking of state loan was already in force,
therefore its disregard or a too wide interpretation of the
competence of the Government on the basis of a substatutory act
would mean that the principle of the supremacy of the
Constitution in the system of legal acts - a fundamental
requirement for a democratic state - is disregarded.
In assessing the compliance of the disputed Government
resolution with Part 1 of Article 128, one must also take into
consideration the fact that there exist two important aspects
of legal regulation in the content of the said constitutional
norm. First of all, as it was already mentioned in the present
ruling of the Constitutional Court, an imperative requirement
is consolidated in the constitutional norm that only the Seimas
may adopt decisions concerning state loans and other basic
property liabilities of the state. The Government has the right
to initiate discussions on such issues at the Seimas. The
second aspect which is of importance in the present case is the
fact that deliberations upon state loans and other basic
property liabilities of the state presuppose an open
discussion. Meanwhile the Government did not appeal to the
Seimas with a motion to decide the question of a purposive
state loan designated to support commercial banks and,
therefore, the Seimas did not consider this question. Such a
decision of the Government was not in line with the principle
of openness.
Thus the investigation of the legal regulation which
existed at the time of adoption of the disputed Government
resolution indicates that the Government had no right to
organise an auction of securities for any purpose but financing
of the state budget. The Government, by adopting a classified
resolution to organise a close auction of Government loan bonds
designated to support commercial banks, overstepped the powers
granted to it by the Constitution in the sphere of state loan
taking and disregarded the purpose of taking of a state loan
which had been established in the Law "On Approving the 1995
State Budget of the Republic of Lithuania and the
Specifications of Deductions into Budgets of Self-Governments
and Their Subsidies".
Therefore one should conclude that the disputed Government
resolution contradicts Part 1 of Article 128 of the
Constitution and Article 4 of the Law "On Approving the 1995
State Budget of the Republic of Lithuania and the
Specifications of Deductions into Budgets of Self-Governments
and Their Subsidies".
2.1. Part 2 of Article 128 of the Constitution stipulates:
"Procedures concerning the management, utilisation, and
disposal of State property shall be established by law."
The entirety of the rights of management, utilisation and
disposal of property constitutes the content of the right to
property. The said norm of the Constitution commissions the
legislator to regulate state property relations by law.
The state property right is a type of public property
right. The chapter "The Public Property" of the Civil Code
consolidates that the subject of the right to state property
shall be the state (Article 97 of the Civil code), while the
institutions of supreme state power and governance shall
manage, utilise and dispose of state property (Article 99 of
the Civil Code).
The nature of state property as public property determines
respective restriction of powers of subjects who implement
property rights of the state. Bearing in mind the fact that the
state is a legal subject of the right to property of the state,
while the economic owner of state property is society, in that
case the right to property of the state must be accomplished in
the general (public) interest. Here an exclusive role falls
upon the representative body of state power - the Seimas -
which establishes procedures concerning the management,
utilisation, and disposal of state property by passing laws.
The competence of the Government in this sphere is
circumscribed by laws.
2.2. Item 5 of Article 21 of the Law on Government
prescribes: the Government shall hold, use and dispose of the
state property according to the procedures and situations
established by law. This norm of blanket character directs to
the laws regulating corresponding relations of state property.
The petitioner points out that the disputed Government
resolution should be assessed bearing in mind the Law on State
Treasury, too. In his opinion, the decision of the Government
consolidated in the said resolution as regards the use of the
borrowed means which became state property contradicts the
stipulation of Part 2 of Article 1 of the Law on State Treasury
which provides that the money resources which are disposed of
by the Government may only be used for financing the needs
established by the law.
In assessing the disputed Government resolution from this
standpoint, the Constitutional Court notes that, as a rule,
financing is understood as appropriation of finances gratis.
Meanwhile the Government resolution ordered the Ministry of
Finance which accomplishes the functions of state treasury to
deposit in the Vakarų Bankas up to 30 million litas received
for selling of Government bonds on condition that the latter
shall guarantee the returning of the deposit with its building,
while the remaining portion of the means it was ordered to
deposit into the "Aurabankas". The said Government resolution
establishes that the means shall be deposited in the said banks
for the term not exceeding 4 months, receiving no less than 27
per cent of annual interest. According to the said Government
resolution, the uppermost margin of annual interest under which
claims had to be satisfied constituted 26 per cent.
Depositing of state means in a commercial bank is not
financing of the bank, i.e. appropriation of finances gratis.
Therefore the disputed government resolution is not to be
assessed on such grounds. There also exist no legal grounds to
decide the question of the compliance of the said Government
resolution with Part 2 which is of blanket character of Article
128 of the Constitution.
Taking account of these arguments one should conclude that
the disputed Government resolution is in compliance with Part 2
of Article 1 of the Law on State Treasury, and Item 5 of
Article 21 of the Law on the Government.
Conforming to Article 102 of the Constitution of the
Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law
of the Republic of Lithuania on the Constitutional Court, the
Constitutional Court has passed the following
ruling:
1. To recognise that the 31 August 1995 Government of the
Republic of Lithuania Resolution No. 1169-22 "On the Special
Auction of Government Securities" contradicts Part 1 of Article
128 of the Constitution and Article 4 of the Law "On Approving
the 1995 State Budget of the Republic of Lithuania and the
Specifications of Deductions into Budgets of Self-Governments
and Their Subsidies".
2. To recognise that the 31 August 1995 Government of the
Republic of Lithuania Resolution No. 1169-22 "On the Special
Auction of Government Securities" is in compliance with Part 2
of Article 1 of the Republic of Lithuania Law on State
Treasury, and Item 5 of Article 21 of the Law on the Government
of the Republic of Lithuania.
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated on behalf of the Republic of
Lithuania.