TMI Blog1997 (9) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... ious problems are observed in the insufficient growth in productivity, poor project management, over-manning, lack of continuous technological upgradation, and inadequate attention to R D and human resource development. In addition, public enterprises have shown a very low rate of return on the capital invested. This has inhibited their ability to regenerate themselves in terms of new investments as well as in technology development. The result is that many of the public enterprises have become a burden rather than being an asset to the Government. The original concept of the public sector has also undergone considerable dilution. The most striking example is the take over of sick units from the private sector. This category of public sector units accounts for almost one-third of the total losses of central public enterprises. Another category of public enterprises which does not fit into the original idea of the public sector being at the commanding heights of the economy, is the plethora of public enterprises which are in the consumer goods and services sectors. 32. It is time, therefore, that the Government adopt a new approach to public enterprises. There must be a greater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that disinvestment of a part of the Government's shareholding was necessary for revitalising the public sector, and such shares will be offered to mutual funds, financial institutions, general public and workers so as to raise resources and encourage wider public participation. 4. In pursuance of such policy, the first round of disinvestment was carried out by the Union Government in two phases in December 1991, and February 1992, in favour of financial institutions, by what is known as the 'bundles method' that is by offering bundles consisting of shares of nine public sector enterprises, three of which were considered very good, three were good and three were average. During the first round, 20 per cent of BEL shares were disinvested in February 1992, as follows : Sl. No. Name of purchaser No. of shares sold 1. Unit Trust of India 1,24,83,100 2. Canbank Mutual Fund 11,80,300 3. SBI Mutual Fund 11,80,300 4. Bank of Baroda 1,85,000 5. BOI Mutual Fund 9,71,300 Total 1,60,00,000 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aratory study and no efforts were made to generate widespread investor enthusiasm among financial institutions/mutual funds, about PSEs shares to encourage good response from them. ( ii )inclusion of some of the PSEs in the programme of disinvestment was not proper (as the concerned PSEs and the administrative ministries had advised exclusion of such PSEs from the disinvestment scheme) resulting in gross under-realisation of sale receipts. ( iii )the method adopted for sale, that is, sale of shares of three types of PSEs (very good, good and average) by putting them in common bundles, depressed the value of good snares. ( iv )the reserved prices originally fixed by the Government on the basis of accepted criteria, were reduced drastically to enable it to accept the low offers received, resulting in under-realisation of value, estimated at Rs. 3,442 crores; ( v )composition of the bundles of PSE shares for disinvestment were determined even before fixing the reserve price of shares of each PSE resulting in under-quotation by the financial institutions and mutual funds; ( vi )the Government committed a strategic blunder in offering shares valued at Rs. 8,000 crores (on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions at reasonable value with a stipulation that as and when these shares are offered to the, general public, 90 per cent of the price gain should be transferred to the Government; and ( vi )if the aim of the Government was only to raise the intended amount prior to 31-3-1992, adopt the short-term solution of raising loans from financial institutions against collateral of shares which could in due course be offered to public, including the financial institutions, and repay the loans from the sale realisations. 7. The Government of India issued an advertisement in the newspapers dated 20-3-1994, inviting tenders from the public, for purchase of shares in Central public sector companies including 88 lakh shares of BEL (11 per cent of the total paid-up share capital as on 31-3-1992) of the face value of Rs. 10 each. The offer in regard to the second disinvestment opened on 17-3-1994, and closed on 31-3-1994. Feeling aggrieved, the petitioners filed these petitions for the following reliefs : ( a )for quashing the decision of the Union Government to disinvest through the tender system ; ( b )for a direction to respondent Nos. 1 and 2 (Union of India and Department of Public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 5 per cent) in BEL held by the President of India to the regular employees of RBEL (subject to a maximum of 200 shares per employee) at Rs. 121 per share. This was in turn notified by the fourth respondent to its employees by circulars dated 16-8-1995 and 22-8-1995-(Annexures 'T-1 and T-2) According to the petitioners, the offer price of Rs. 121 per share is arbitary, discriminatory and excessive ; and it should have been only around Rs. 30 per share. Further, the offer of only, 5 per cent of shares was intended to frustrate the demand of the employees of BEL for 26 per cent of the shares. Hence, the petitioners amended the petition by adding the following prayers : ( f )for quashing the circular dated June 16, 1995 (Annexure T), and the consequential circulars Annexures T-1' and T-2'; ( g )for a direction to the second respondent to reissue afresh offer in accordance with law, containing a reasonable price per share after due consultation with recognised trade unions. 8. The petitioners also made additional interim prayers including stay of Annexures T , T-1' and T-2', and for sale of BEL shares to BEL employees at a price of about Rs. 27 per share. However, the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result in the sale of shares at rates below market price; that the Government ought to have proposed the second round of disinvestment by a public issue after generating investor enthusiasm, instead of inviting tenders for sale of shares; that the Government ought to have fixed the issue price after revaluing the assets of BEL whose book value is grossly undervalued; that the Government had failed to learn from the mistakes committed during the first disinvestment, in spite of the Comptroller and Auditor-General specifically pointing out the in adequacies and mistakes; and that such hasty disinvestment of the shares will fetch only 10 per cent of the actual market value of around Rs. 160 per share. It is also contended that SEBI has issued guidelines for disclosure of the true position of the company for investor protection. But, the brochure issued by the Government of India for sale of BEL shares is in violation of such SEBI guidelines. It is contended that a public issue would have resulted in a broader shareholding pattern and given the genera] public a chance to participate in the disinvestment ; instead, the second disinvestment proposed by the Government will give a golden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved...." (p. 2147) 14. In the Delhi Science Forum v. Union of India AIR 1996 SC 1356, the Supreme Court held that the above observations in Moray's case ( supra ) and R.K. Garg's case ( supra ), though made with reference legislations, were equally applicable to policies of the Government. The Supreme Court observed : "What has been said in respect of legislations is applicable even in respect of policies which have been adopted by Parliament. They cannot be tested in a court of law. The courts cannot express their opinion as to whether at a particular juncture or under a particular situation prevailing in the country, any such national policy should have been adopted or not. There may be views and views, opinions and opinions which may be shared and believed by citizens of the country including the representatives of the people in Parliament. But that has to be sorted out in Parliament which has to approve such policies. Privatisation is a fundamental concept underlying the questions about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating factors are shown to exist in the present case.. . ." (p. 1551) 16. In A.S. Sangwan v. Union of India AIR 1981 SC 1545, the Supreme Court observed : "...A policy once formulated is not good for ever; it is perfectly within the competence of the Union of India to change it, rechange it, adjust it and readjust it, according to the compulsions of circumstances and the imperatives of national considerations. We cannot, as a court, give directives as to how the Defence Ministry should function except to state that the obligation not to act arbitrarily and to treat employees equally is binding on the Union of India because it functions under the Constitution and not over it. In this view, we agree with the submission of the Union of India that there is no bar to its changing the policy formulated in 1964, if there are good and weighty reasons for doing so. We are far from suggesting that a new policy should be made merely because of the lapse of time, nor are we inclined to suggest the manner in which such a policy should be shaped. It is entirely within the reasonable discretion of the Union of India. It may stick to the earlier policy or give it up. But one imperative o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said, and often is said, to be acting 'unreasonably'. Similarly, you may have something so absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington L.J., I think, it was who gave the example of the red-haired teacher, dismissed because she had red hair. That is unreasonable in one sense. In another sense it is taking into consideration extraneous matters. It is so unreasonable that it might almost be described as being done in bad faith. In fact, all these things largely fall under one head." (p. 682) 19. This principle was reiterated by the Supreme Court in Tata Cellular v. Union of India [1994] 6 SCC 651. 20. We will now examine the points arising for consideration in the light of the aforesaid principles. 21. The policy of disinvestment as such is not under challenge. In fact, the policy of disinvestment, by itself, does not violate any constitutional or statutory provision. But if in implementing the disinvestment policy, the Government selects some PSEs for disinvestment haphazardly without any scheme of guidelines, or if the procedure adopted for sale of shares or the method adopted for fixation of the price o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered for sale were made available to prospective buyers in the designated branches of SBI, as also in stock exchanges, branches of ICICI Securities and Finance Co. Ltd., and the concerned PSEs. ( e )The bids were invited for 825 bundles of the average value of Rs. 9.75 crores each in all about Rs. 8,000 crores. No small bids were permitted. Tenders were for a minimum of Rs. 25,000 only, for shares of each company, thereby permitting participation of a large number of applicants. ( f )The average price of BEL shares realised was about Rs. 30 per share as against the initial reserve price of Rs. 80 per share. The average disinvestment price was Rs. 142.50 per share (with a special offer price of Rs. 121 per share for employees). The reserve price was fixed at Rs. 133 per share as per the procedure decided for disinvestment and only bids received above the reserve price were accepted. Thus, the realisation was more than the reserve price. ( g )The reserve price fixed was low without taking note of relevant factors and the sale realisations were even lower than the reserve price. The price realised was in the range of the open market price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, the customer profile of BEL has undergone a change and has shown an increasing trend towards the civilian segment. In 1992-93, civilian sales accounted For nearly 54 per cent of the operating income...." 25. In fact the Government considered this question while taking a decision on investment. The relevant note put up by the department of public enterprises shows that the following reason was considered in the CCEA and only thereafter the decision was taken to disinvest in BEL : "A view was expressed by the Ministry of Defence, Department of Production, that there should be no disinvestment in BEL and BEML on the plea that these PSEs are manufacturing/producing items required by defence also in addition to items required for civil use. This point was considered in the Steering Committee also. In this regard, our view is that these PSEs are not performing 100 per cent defence functions. (In fact BDL, which is 100 per cent defence-oriented, has been excluded from the list of 38 approved by CCEA). So far as PSEs like BEL and BEML are concerned they are not totally defence-oriented and could do with some disinvestment which could require them to become a little more compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t alternative of 'offer for sale', difficulties may be encountered in estimating and determining the 'fixed' price if it is offered for the first time and the shares have not actually been trading in the stock exchange. On the other hand, this method has the advantage of spreading the ownership widely amongst the general public and in a transparent manner. A prerequisite for this method is to list the shares of enterprises in the stock exchange and establish a track record of trading. In the case of those PSEs for which the first sale of equity is yet to be made, or those where the track record of trading in shares is yet to be established, the tender system would be advantageous. The last method of negotiated sale has the advantage of direct interface with potential new owners so as to specify the manner of future operation of the enterprise to achieve the best social objectives. But it has the demerit of the potential for long drawn out negotiations and allegations of favouritism." [Emphasis supplied]. 28. We do not, therefore, find any infirmity or constitutional or statutory violation in the second round of disinvestment of BEL shares in pursuance of the Government's poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and continue to be a public sector undertaking. Neither the future of the company as a public sector undertaking, nor the position of employees, is jeopardized by the disinvestment. There is no alteration in the conditions of service of the employees nor any threat to their employment on account of such disinvestment. The act of disinvestment does not affect the interests of the employees nor does it have the effect of adversely affecting the conditions of service at present or in future. In fact it contemplates benefits to the employee by offering 5 per cent of the shares at a concessional price. Therefore, prior consultation with the employees of the company is also not necessary. 32. The Madras High Court in two cases Sourthern Structurals Staff Union v. Management of Southern Structurals Ltd. [1994] 81 Comp. Cas. 389; and Tamil Steel Staff Union v. State of Tamil Nadu [1994] 2 SCL 406 has held that employees have no vested right in the employer continuing to be a Government company; and the employees cannot claim any right to decide as to who should own the shares of the employer company; and the status of being employees of a Government company, does not require t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies (Special Provisions) Act, 1985, and the scheme was framed in exercise of jurisdiction under article 142 of the Constitution. The facts, circumstances and the questions involved in that decision were completely different and have no bearing on the question of disinvestment. 36. The policy of disinvestment neither offends the fundamental or statutory rights guaranteed to a worker, nor runs counter to any of the Directive Principles, much less article 43A. The employees of a public sector undertaking have neither any constitutional nor any statutory right to require the majority shareholder to sell 26 per cent of the shares to the employees or to work out a stock options scheme for employees. Nor can they contend that they have a legitimate expectation to get 26 per cent shares when the Government decided to disinvest a part of its holdings. How much should be disinvested and how much should be given to the employees at a concessional rate is a matter of policy. There was no bar to the employees from applying for shares when Government invites offers for purchasing 11 per cent shares. There was no assurance that 26 per cent of the shares will be given to the employees at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said scheme. Insofar as IOC and ONGC are concerned, respondent Nos. 1 and 2 have made it clear that the Government of India had not disinvested any part of its shareholding in favour of any of the employees of the said companies; and the employees of IOC and ONGC were offered shares by the respective companies themselves while issuing fresh shares under the Companies Act, 1956. Therefore, the pricing formula adopted by those companies for allotment of shares to its employees cannot be compared to the method of pricing adopted in the case of BEL. It is, thus, evident that there is no basis for the complaint of discrimination put forth by the petitioners. 38. We will now deal with the grievance that the offer price of Rs. 121 per share to BEL employees is high. The petitioners have not been able to make out any irregularity, discrimination or arbitrariness in fixing the offer price. The offer price has been fixed by giving a discount of 15 per cent from the last available disinvestment price. Thus, the offer price has a relevant basis. What should be the discount to be given in the case of employees of the PSEs, is a matter of policy and such policy has been uniformly applied. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if not more, a part of the company, as the shareholders of the company. The company has a threefold reality - economic, human and public - each with its own internal logic. The reality of the company is much broader than that of an association of capital; it is a human working community that performs a collective action for the common good - passage from The Principles of Modern Company Law by Professor Gower and an article by Prof. De Wool of Belgium, quoted with approval by the Supreme Court in National Textile Workers' Union's case ( supra ). In the same decision, the Supreme Court further observes : "...It is not only the shareholders who have supplied capital, who are interested in the enterprise which is being run by a company but the workers who supply labour are also equally, if not more interested because what is produced by the enterprise is the result of labour as well as capital. In fact, the owners of capital bear only limited financial risk and otherwise contribute nothing to production while labour contributes a major share of the product. While the former invest only a part of their moneys, the latter invest their sweat and toil, in fact their life itself. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anting reasonable time or instalments for payment of the share price; and ( c ) safeguards to ensure that such shares are retained by the workers, either by stipulating that the shares are non-transferable except to other BEL employees or by prohibiting transfer during a specified period. 44. Even in regard to the offer price, there is some cause for grievance. Though the disinvestment in favour of workers was mentioned, in the Budget Speech in 1991, the shares were not offered to the employees during the first disinvestment. It was offered only after the second disinvestment. If the shares had been offered to the employees during the first disinvestment or immediately thereafter, they would have got the shares at far lesser and affordable prices. In the case of BEL, the offer price would have been around Rs. 30 per share, if the shares had been offered before the second disinvestment. By postponing the offer in favour of employees until after the second disinvestment, the offer price has been increased from Rs. 30 to Rs. 121 in the case of BEL. It is seen that in regard to eight of the public sector undertakings, the offer of shares to employees was made in April 1994, and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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