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1997 Supreme(Kar) 549
Karnataka High Court
Judges : S.Rajendra Babu,R.V.Raveendran
PROF.BABU MATHEW - Appellant
Versus
UNION OF INDIA (UOI) - Respondent
Writ Petition 9329 Of 1994
Decided On : 09/18/1997
The court held that the implementation of the disinvestment policy in the case of BEL was arbitrary, unreasonable, and irrational in certain respects, and directed the Government to evolve a scheme for effective workers' participation in the capital of BEL and other PSEs.
Headnote:
DISINVESTMENT - PUBLIC SECTOR ENTERPRISES - POLICY - IMPLEMENTATION - JUDICIAL REVIEW - SCOPE - ARBITRARINESS - UNREASONABLENESS - IRRATIONALITY - PRIOR CONSULTATION WITH EMPLOYEES - RESERVATION OF SHARES FOR EMPLOYEES - EMPLOYEES' STOCK OPTION SCHEME - OFFER PRICE OF SHARES TO EMPLOYEES - DISCRIMINATION - WORKERS' PARTICIPATION IN MANAGEMENT - DIRECTIVE PRINCIPLES OF STATE POLICY - ARTICLE 43A OF THE CONSTITUTION.
Fact of the Case:
Petitioners, employees of Bharat Electronics Ltd. (BEL), challenged the procedure adopted by the Union of India in implementing the policy of disinvestment in public sector enterprises, particularly BEL. They questioned the sale of BEL shares through the tender system, the absence of prior consultation with the management and employees' unions, the non-reservation of a substantial proportion of shares for employees, the failure to work out an effective employees' stock option scheme, and the alleged excessive offer price of shares to employees.
Finding of the Court:
The court held that the policy of disinvestment, as such, did not violate any constitutional or statutory provision. However, the court found that the implementation of the disinvestment policy in the case of BEL was arbitrary, unreasonable, and irrational in certain respects. The court noted that the selection of BEL for disinvestment was not justified as it was a defense-oriented company and should have been retained as a 100% Government-owned company. The court also found that the sale of shares through the tender system was not appropriate as it resulted in the sale of shares at prices below the reserve price. Additionally, the court held that the Government failed to take into account the recommendations of the Comptroller and Auditor-General and the expert committee on disinvestment, which resulted in the repetition of mistakes made during the first round of disinvestment.
Issues: 1. 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 constituted in regard to disinvestment in PSEs? 2. Whether the mistakes pointed out by the Comptroller and Auditor-General in regard to the first round of disinvestment have been repeated during the second round of disinvestment and whether any directions should be issued to the Government of India regarding disinvestment in pses? 3. Whether the Government of India is bound to hold prior consultation with the management and employees' unions, and negotiations with the unions, as to whether there should be disinvestment, the extent of shares to be offered to the employees and the price for the shares offered to the employees? 4. Whether the Government of India is bound to reserve up to 26 per cent. Of shares for allotment to employees to fulfil the constitutional goal of workers' participation, under Article 45a of the Constitution; and whether the offer of only 5 per cent. Shares to the employees of pses is arbitrary and irrational? 5. Whether the respondents are bound to work out an employees' stock option scheme in consultation with the unions? 6. Whether the offer price of Rs. 121 to employees of BEL is excessive and unreasonable; and whether respondents Nos. 1 and 2 are bound to make a fresh offer at a lesser price (preferably around Rs. 27 per share) to the employees of BEL? 7. Whether there is any discrimination in fixing the share price payable by BEL employees when compared to the share price paid by the employees of other similarly placed PSEs.
Ratio Decidendi: 1. The court held that the policy of disinvestment, as such, did not violate any constitutional or statutory provision. However, the court found that the implementation of the disinvestment policy in the case of BEL was arbitrary, unreasonable, and irrational in certain respects. 2. The court noted that the selection of BEL for disinvestment was not justified as it was a defense-oriented company and should have been retained as a 100% Government-owned company. 3. The court also found that the sale of shares through the tender system was not appropriate as it resulted in the sale of shares at prices below the reserve price. 4. Additionally, the court held that the Government failed to take into account the recommendations of the Comptroller and Auditor-General and the expert committee on disinvestment, which resulted in the repetition of mistakes made during the first round of disinvestment.
Final Decision: The court directed the Government to evolve a scheme for effective workers' participation in the capital of BEL and other PSEs, keeping in view the observations made by the court in the judgment. The court also directed the Government to ensure that such a scheme is implemented expeditiously.
( 2 ) THE Industrial Policy Statement of 1991 of the Government of India led to partial disinvestment in selected public sector undertakings. The relevant portion of the said policy statement dated July 24, 1991, is extracted below (see [1991] 71 Comp Cas (St.) 126, 132) :
"31. After the initial exuberance of the public sector entering new areas of industrial and technical competence, a number of problems have begun to manifest themselves 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 and 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 resultis 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. ft is time, therefore, that the Government adopt a new approach to public enterprises. There must be a greater commitment to the support of public enterprises which are essential for the operation of the industrial economy. Measures must be taken to make these enterprises more growth oriented and technically dynamic. Units which may be faltering at present but are potentially viable must be restructured and given a new lease of life. The priority areas for growth of public enterprises in the future will be the following : * Essential infrastructure goods and services. * Exploration and exploitation of oil and mineral resources. * Technology development and building of manufacturing capabilities in areas which are crucial in the long-term development of the economy and where private sector investment is inadequate. * Manufacture of products where strategic considerations predominate such as defence equipment. At the same time the public sector will not be barred from entering areas not specifically reserved for it.
33. In view of these considerations, the Government will review the existing portfolio of public investments with greater realism. This review will be in respect of industries based on low technology, small scale and non-strategic areas, inefficient and unproductive areas, areas with low or nil social considerations or public purpose, and areas where the private sector has developed sufficient expertise and resources.
34. The Government will strengthen those public enterprises, which fall in the reserved areas of operation or are in high priority areas or are generating good or reasonable profits. Such enterprises will be provided a much greater degree of management autonomy through the system of memoranda of understanding. Competition will also be induced in these areas by inviting private sector participation. In the case of selected enter-prises, part of Government holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises. There
