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IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
All India Idbi Officers Association Through Its General Secretary - Petitioner
Versus
Union of India & Ors. - Respondents
W.P.(C) 8842 of 2018 & CM APPL. 33999 of 2018, 34000 of 2018, 41432 of 2018
Decided On : 17-12-2018
The petition challenges the Government of India's (GOI) decision to reduce its shareholding in Industrial Development Bank of India Limited (IDBI Ltd.) below 51% and the Life Insurance Corporation of India's (LIC) decision to acquire a controlling stake in IDBI Ltd. The petitioner, an association of IDBI Ltd. employees, argues that these decisions violate various laws and regulations, including the Industrial Development Bank of India Act, 1964, the Industrial Bank (Transfer of Undertaking and Repeal) Act, 2003, and the Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016. The Court examines the relevant legal provisions and the factual background of the case to determine whether the impugned decisions are legally tenable.
Fact of the Case:
The GOI announced its decision to reduce its stake in IDBI Ltd. in 2016. Subsequently, LIC expressed its interest in acquiring a controlling stake in IDBI Ltd. and obtained permission from the Insurance Regulatory and Development Authority of India (IRDAI) to do so, subject to certain conditions. The petitioner challenged these decisions, arguing that they violated various laws and regulations and would adversely affect the employment conditions of IDBI Ltd. employees.
Finding of the Court:
The Court held that the GOI's decision to reduce its stake in IDBI Ltd. was not contrary to any statutory provision and that the Government was at liberty to act as any other shareholder. The Court also held that the Industrial Bank (Transfer of Undertaking and Repeal) Act, 2003 did not restrict IDBI Ltd. from conducting its business in the manner it thought fit, including changing its employment policy or the terms of employment with its employees. The Court further held that the LIC's decision to acquire a controlling stake in IDBI Ltd. was a commercial decision that did not fall within the scope of judicial review. The Court also held that IRDAI's decision to relax the investment norms for LIC was not arbitrary or unreasonable and was within its powers under the relevant regulations.
Issues: 1. Whether the GOI's decision to reduce its shareholding in IDBI Ltd. below 51% was contrary to any statutory provision or violated any assurance held out by the Government to the Parliament. 2. Whether the LIC's decision to acquire a controlling stake in IDBI Ltd. was arbitrary, unreasonable, or in breach of its fiduciary duty to policyholders. 3. Whether IRDAI's decision to relax the investment norms for LIC was arbitrary, unreasonable, or without application of mind.
Ratio Decidendi: 1. The GOI's decision to reduce its shareholding in IDBI Ltd. was not contrary to any statutory provision and the Government was at liberty to act as any other shareholder. 2. The LIC's decision to acquire a controlling stake in IDBI Ltd. was a commercial decision that did not fall within the scope of judicial review. 3. IRDAI's decision to relax the investment norms for LIC was not arbitrary or unreasonable and was within its powers under the relevant regulations.
Final Decision: The petition was dismissed, and all pending applications were disposed of. The parties were left to bear their own costs.
JUDGMENT :
VIBHU BAKHRU, J.
1. The petitioner ? an association of certain employees of Industrial Development Bank of India Limited (hereafter ‘IDBI Ltd.’) ? has filed the present petition, inter alia, praying that Government of India (respondent no.1) be restrained from reducing its shareholding in IDBI Ltd. below 51%. The petitioner also seeks directions to respondent no.2 (Life Insurance Corporation of India – hereafter ‘the LIC’) not to acquire the controlling stake of 51% in IDBI Ltd. The petitioner also impugns the permission granted by respondent no.6 (Insurance Regulatory and Development Authority of India – hereafter ‘IRDAI’) to the LIC to acquire more than 15% of the equity share capital of IDBI Ltd.
2. The petitioner has challenged the said acquisition of IDBI Ltd. by LIC, essentionally, on three grounds. First, that the reduction of the majority stake of the Central Government in IDBI Ltd. is ultra vires of the Industrial Development Bank of India Act, 1964 read with Industrial Bank (Transfer of Undertaking and Repeal) Act, 2003. Second, that the privatisation of IDBI Ltd. will have an adverse impact on the employment conditions of the employees of the concerned Bank, especially the SC/ST and the OBC employees. And third, that the said acquisition is not in consonance with public interest, as it endangers the investments made by the public in IDBI Ltd. and further deteriorate LIC’s ability to pay back its policy holders, in view of LIC’s huge investment for acquiring the majority stake.
Factual Background
3. Industrial Development Bank of India (hereafter ‘the Development Bank’) is one of the major public sector bank/nationalised bank in India. The government currently holds around 85% of the stake in the Development Bank (now known as IDBI Ltd.). On the other hand, respondent no.2 (LIC) is an Indian state-owned Insurance Group and investment company, which was found in 1956 to provide for the nationalisation of life insurance business in India by the enactment of the Life Insurance Corporation Act, 1956.
4. The Development Bank was established under the Industrial Development Bank of India Act, 1964 (hereafter ‘the IDBI Act, 1964’) to provide for credit and other facilities for the development of industry. It functioned as a department of Reserve Bank of India (RBI) till 1976. In the year 1977, the Development Bank was de-linked from the RBI. Its shareholding was transferred to the Central Government and, accordingly, it was transformed into a statutory body and wholly owned by the Government of India.
5. In the year 1994, the IDBI Act, 1964 was amended which, inter alia, allowed the Development Bank to enlarge its shareholder’s base and access the capital market for resources.
6. Thereafter LIC, by a letter dated 15.10.2001, sought permission of IRDAI for acquisition in a Corporation Bank. IRDAI replied by a letter dated 17.10.2001 and approved the acquisition plan of LIC. The said approval was given by IRDAI subject to LIC not acquiring more than 30% stake in the concerned Corporation Bank.
7. Subsequently, in the year 2002, IDBI (Transfer of Undertaking and Repeal) Bill, 2002 was introduced in the Parliament with the objective of facilitating the Development Bank to discharge its mandated development finance institution role in an effective manner.
8. After thorough debates, the said Bill was passed by both the Houses and on 10.10.2004, the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 (hereafter ‘the IDBI Repeal Act, 2003’) was enacted and the Development Bank was renamed as IDBI Ltd. By virtue of the IDBI Repeal Act, 2003, the business and undertaking of the Development Bank stood transferred to and vested in Industrial Development Bank of India Limited (IDBI Ltd.), a company registered and incorporated under the Companies Act, 1956 and a banking company within the meaning of Section
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