JUDGMENT

Dr D Y CHANDRACHUD, J

Centre for Public Interest Litigation, while invoking the jurisdiction of this Court under Article 32 of the Constitution sought diverse reliefs in relation to the conduct of business and affairs of Industrial Finance Corporation of India. The reliefs which have been sought in these proceedings are for :

(i) The removal of Atul Kumar Rai, the Respondent No. 4 from the post of Chief Executive Officer and Managing Director;

(ii) An independent investigation into allegations of administrative and financial irregularities of IFCI;

(iii) A direction to the Union of India to exercise its powers under the “surviving provisions” of the Industrial Finance Corporation;

(iv) Transfer of Undertaking and Repeal Act, 1993, in particular by enforcing its rights for conversion of an investment of Rs. 523 crore in Optional Convertible Debentures into equity.

2. Industrial Finance Corporation of India (IFCI) was established as a statutory Corporation under the Industrial Finance Corporation of India Act, 1948 by the provisions of the Industrial Finance Corporation of India (Transfer of Undertaking and Repeal) Act, 1993. The Act of 948, was repealed and the Corporation was converted into a Company. The Statement of Objects and Reasons accompanying the introduction of the Bill in Parliament indicated that the conversion of IFCI from a statutory Corporation to a Company was necessitated in view of the decline in the availability of concessional funds from government and the Reserve Bank of India. As a result of the developments which took place in the financial sector, it had become necessary for IFCI to raise resources from the market.

3. A major shareholder of IFCI was the Industrial Development Bank of India which was essential in a competing market position. As a result of the repeal enactment a new Company governed by the Companies Act 1956 was established to which the entire undertaking business and functions of IFCI as well as its assets and liabilities were transferred. The financial position of IFCI painted a dismal picture. On 31 March 2002, its accumulated losses were over Rs. 1100 crore; its net worth stood at a negative Rs. 31 crore and non-performing assets were officially estimated at 32 per cent.

4. A group of Ministers was formed in July 2002 to work out a restructuring package following its recommendations. A note was placed before the Cabinet in November 2002 stating that 56 per cent of the equity was held by public sector institutions and the nationalized banks. The restructuring package was approved by the Union Cabinet on 17 February 2005 and until 2006-07 a total amount of Rs. 2932.31 crore was provided by way of assistance to IFCI of which an amount of Rs. 523 crore was in the form of Optional Convertible Debentures. As on 31 March 2011, IFCI had outstanding loans to the Union Government of Rs. 923 crore, grants-in-aid of Rs. 2409.31 crore and outstanding guarantees of Rs. 2797.06 crore. Under the package which was approved by the Union Government a total amount of Rs. 2932.31 crore was released to IFCI. In or about December 2009, the Union Government received several complaints from Members of Parliament and from the employees association of IFCI alleging gross irregularities in certain investments made and generally in regard to the accountability of IFCI to the Government of India. Among the irregularities is the role ascribed to the Respondent No. 4, Atul Kumar Rai. The Respondent No. 4 belongs to the IES cadre and had joined the banking division (later known as the Department of Financial Services) as a Director on 1 November 2002. On 7 November 2002, he was appointed as a Director (Industrial Finance), in the Department of Financial Services, Ministry of Finance inter alia dealing with the operational, policy and budgetary matters relating to financial institutions including IFCI. On 21 August 2005, he was nominated as Government Director on the Board of IFCI in which capacity he continued until