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TMI Blog1997 (9) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... ves in many of the public enterprises. Serious 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 pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Parliament and it was stated 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. As the response and results of the first disinvestment were not satisfac-tory, the Government of India set up an expert committee in February 1992, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 basis of original reserve price) to financial institutions/mutual funds knowing fully that the investible resources of such institutions/funds were only Rs. 2,000 to Rs. 2,500 crores ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment 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 Enterprises) to hold prior consultation with affected interests, such as the management of BEL, the negotiating trade unions and the officers' association ; (c)for a direction to respondent Nos. 1 and 2 to ensure reservation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 additional interim prayers were not granted. 9. The claims and contentions put forth by the petitioners raises the following points for consideration : (a)whether the decision of the Government of India regarding the second round of disinvestment by the tender system is against public interest and opposed to the suggestions /recommendations made by the Comptroller and Auditor-General and, the expert committee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 opportunity to foreign institutional investors, to grab national assets at throw-away prices. The petitioners have, however, made it clear that they are not challenging the disinvestment policy, but only the manner of implementation of the disinvestment policy. 11. Before examining the contentions of the petitioners, it may be convenient and necessary to bear in mind the well-settled parameters relating to interference by courts in matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 power to make economic decisions. What should be the role of the State in the economic development of the nation ? How shall the resources of the country be used ? How shall the goals fixed be attained ? What are to be the safeguards to prevent the abuse of the economic power ? What is the mechanism of accountability to ensure that the decision regarding privatisation is in public interest ? All the questions have to be answered by the vigilant Parliament. Courts have their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 of the Constitution implicit in article 14 is that if it does change its policy, it must do so fairly and should not give the impression that it is acting by any ulteria criterion or arbitrarily...." (p. 1546) 17. In Premium Granites v. State of Tamil Nadu [1994] 2 SCC 691, the Supreme Court held : "It is not the domain of the court to embark upon unchartered ocean of public policy in an exercise to consider as to whether a particular public policy is wise, or a better public policy can be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs 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 of shares, is purely on ad hoc basis, without reference to any principles or guidelines, by failing to take note of matters which are bound to be considered, or by not excluding from consideration, matters which are irrelevant to the subject-matter, the court may interfere under article 226, on the ground that the procedure adopted or the decision is arbitrary, unreasonable and irrational. Courts will not hesitate to interfere where the policy is sound, but in implementing the policy, it is diluted, twisted, mangled and ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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. The reserve price was fixed with reference to relevant factors. (h)20 per cent shares were sold at low prices resulting in enormous loss. Only 4.1 per cent shares sold as against 11 per cent of the shares offered for sale. By ensuring that all sales were at prices above the reserve price, there was no loss. (i)No proper guidelines of scheme was available and several shortcomings were pointed out by the Comptrol-ler and Auditor-General and by the PAC report. The recommendations of the report of the committee on disinvestment of shares in PSEs kept in mind. The shortcomings noticed by the Comptroller and Auditor-General and the PAC in the first round of disin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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 competitive and bring them out of their sheltered position. In the MOU exercises we have seen that both could do with a little more openness and disinvestment of this nature could well be the catalyst. Therefore, we feel we should not change our decision in regard to disinvestment in these two PSUs. Being in the reserved sector (though one could argue that these two PSUs should be taken out of the defence sector) we are unlikely to lose control on them in any way, and, this disinvestment would be of the same nature as in some petroleum sector PSUs." 26. The profile of BEL (Annexure 'D') shows that the manufacture of non-defence items like broadcasting and telecommunication equipment and electronic components like in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 policy of disinvestment in public sector enterprises. It is possible that the Government of India might have committed some errors in the first round of disinvestment. In the implementation of any new policy, some errors are bound to occur, usually on account of unforeseen factors and inexperience. So long as the mistakes were neither wilful nor with ulterior motives, and as the disinvestment procedures have been improved and shortcomings corrected in the second round, by taking note of the remarks of the Comptroller and Auditor-General and the PAC and the recommendations of the expert committee, we do not find any reason to hold that the second round of disinvestment is either arbitrary or irrational or unreasonable. No doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 the prior consultation of such employees, a precondition for disinvestment. 33. Any economic reform, including disinvestment in PSEs is intended to shake the system for public good. The intention of disinvestment is to make PSEs more efficient and competitive and perform better. The concept of the public sector and what should be the role of the public sector in the development of the country, are matters of policy closely linked to economic reforms. While it is true that any policy of the Government should be in public interest, it is not shown how prior consultation with employees of a PSE before disinvestment is a facet of such public interest. 34. The decisions relied on by the petitioners do not assist them. In the case of National Textile Workers' Union ( su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 any concessional price. An employees stock option scheme ('ESOS', for short) can neither be thrust on the employer nor on the employees, much less on a stock holder. The guidelines prepared by the Union Finance Ministry for ESOS (Annexure 'D') makes it clear that the scheme will be voluntary in nature, voluntary on the part of the employer and voluntary on the part of the employees. 37. The petitioners contend that the offer price of Rs. 121 per share, for employees is arbitrary and discriminatory and that the offer price should be about Rs. 27 per share. It is contended that the offer price in the case of BEL employees is 79.6 per cent of the market price while in the case of comparable PSUs like ITI, SBI, IOC and ONGC, the offer price is much lower. The petitioners have given the offer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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. The petitioners, having all along contended that the share price secured during the first disinvestment was far below the real value and having sought directions to the respondents to take steps to ensure receipt of maximum price during disinvestment, cannot contend, while referring to the offer price to employees, that the basic price assumed is excessive and the shares should be offered to the employees at a price of about Rs. 27 per share, instead of Rs. 121 per share. Thus, no irregularity or discrimination is made out in the offer price. Further, on account of the fact that interim stay was not granted in regard to the offer of shares to BEL employees, such of those employees who were interested in the shares would have already purchased the shares offered by the Government of India at a price of Rs. 121 per share. 39. Hence, points (c ) to ( g) are also answered in the negative. 40. Though the petitioners are not entitled to the reliefs sought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntribute 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. The workers, therefore; have a special place in a socialist pattern of society. They are mere vendors of toil; they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital-nay, very much more. They supply labour without which capital would be impotent and they are, at the least, equal partners with capital in the enterprise. Our Constitution has shown profound concern for the workers and given them a pride of place in the new socio-economic order envisaged in the Preamble and the Directive Principles of State Policy...." (p. 83) 42. Experiments in developed and developing countries have established that participation of workers in the capital of the employer-company by holding shares, will not only improve productivity and loyalty to the industry, but also develop a sense of belonging, resulting in improved employer-employee relationship. When the Directive Principles contemplate workers participating in the manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regard to 13 companies (including BEL) the offer was made only in August 1995. It cannot be disputed that if the offer had been made in favour of the employees of any PSE immediately after the first disinvestment, and before the second disinvestment, the offer price would have been much less. These aspects and other relevant matters will have to be taken note of while fixing the offer price to the employees. We are sure that the Government will evolve a satisfactory and appropriate scheme for successful and meaningful implementation of disinvestment. 45. Though we find that the petitioners are not entitled to the reliefs in the manner sought, we direct the Government to evolve a scheme keeping in view what we have stated in the course of this order (paras 28 to 31 above) as expeditiously as possible. We hasten to add that we are not suggesting formulation of a new policy nor change of the existing policy. All that we are suggesting is an effective and meaningful implementation of the policy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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