1Balco Employees Union (Regd.) V. Union Of India: Case Analysis INTRODUCTION *Anjani Nandan1 Disinvestment of a company basically means the action of an organization or government selling or liquidating an asset or subsidiary. It is also known as “divestiture“. It may also be a reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods. Thus Disinvestment refers to the sale or liquidation of an asset or subsidiary of an organization or equity and bond capital by the government to the private sector. It also implies the sale of government’s loan capital in PSUs through securitization. However, it is the government and not the PSUs who receive money from disinvestment. In the BALCO Disinvestment case, Supreme Court considered the complex questions relating to effect of disinvestment on the employees and workers and whether the questions of policy and administrative matters and decision can be heard by Supreme Court. The Supreme Court delivered a very elaborate, exhaustive and thoughtful opinion on various issues related to the aspects of disinvestment. Through this article I have tried to analyze in brief the concept of disinvestment, discuss the case and relate it with the aspects of company law. FACTS OF THE CASE: The decision of the Government of India to disinvest M/s Bharat Aluminum Company Limited, popularly known as BALCO was challenged by the employees of BALCO , State of Chattisgarh (the state in which BALCO is located) and by some public spirited individuals before various High Court and finally before the Supreme Court. It was challenged that the decision to disinvest BALCO was contrary to the legal and social interests of the employees as well as certain other legal issues were raised by different parties. LEGAL PROCEEDINGS On 23rd February, 2001, Dr. B. L. Wadhera filed Civil Writ Petition No. 1262 of 2001 in the Delhi High Court (as PIL) This was followed by Writ Petition No. 1280 of 2001 filed by the employees of BALCO on 24th February, 2001 in the High Court of Delhi. 1 2nd Semester, Roll 100, Sec B, National University Of Study And Research In Law, Ranchi. Samund Singh Kanwar filed Civil Writ Petition No. 241 of 2001 in the High Court of Chhattisgarh. which was accepted on 9th April 2001. While the aforesaid writ petitions were pending there was a Calling Attention Motion on Disinvestment with regard to BALCO in the Rajya Sabha and the matter was also discussed in the Lok Sabha. or for that matter any other party having an interest therein. Mr. Pursuant to the execution of sale. 194 by BALCO in the Supreme Court. challenging the validity of the said notices. With the filing of the writ petitions in the High Court of Delhi and in the High Court of Chhattisgarh. 2001 another employee of BALCO. 51% of the equity was transferred to Sterlite Industries Limited and a cheque for Rs. 551. Land Revenue Codeand the Mining Concession Rules. inter alia.5 crores was received. QUESTIONS INVOLVED (ISSUES) Whether such a decision is amenable to judicial review and if so within what parameters and to what extent? Whether disinvestment of the BALCO Ltd was against the interest of the workers and the employees? Whether the employees have the right to hearing in the cases of policy and administrative matters and decision? Whether in the case of decision regarding disinvestment of the company the principles of natural justice would be applicable and that the workers. would have a right of being heard? Whether PIL can be filed by a stranger to challenge the administrative decision of the government? . This led to the filing of the Writ Petition No. namely. an application for transfer of the petitions was filed by the Union of India in the Honorable Supreme Court. the company received various notices from the authorities in Chhattisgarh for alleged breach of various provisions of the M.2 On 24th February. After the notices were issued. 2001. Soon thereafter on 2nd March. P. Shareholders Agreement and Share Purchase Agreement between the Government of India and Sterlite Industries Limited was signed. Balco was a profit-making company and had a huge capital base of about Rs. IV.: (Respondent): Disinvestment is necessary as neither the Centre nor the States have resources to sustain enterprises that are not able to stand on their own in the new environment of intense competition. The impugned decision defeats the provisions of the M.e. Land Revenue Code and goes against the fundamental basis on which the land was acquired and allotted to the company. V. therefore. Further there was no effective protection of the workmen’s interest in the process of disinvestment. 500 crores. land. Rs.. the entire paid-up capital of BALCO was owned and controlled by the Government of India and its administrative control co-vested in the Ministry of Mines. P. 244 crores to the exchequer. Workmen have been adversely affected by the decision of the Government of India to disinvest 51% of the shares in BALCO in favour of a private party. a State within the meaning of Article 12 of the Constitution. It was the only public sector enterprise that had paid its 50% equity. was been grossly underestimated. III. quarters and buildings (Rs 800 crores) and new cold-rolling projects (Rs 184 crores). BALCO was running on outdated technology and was making profits only because aluminium prices in international market were ruling high. Thus the government should not jeopardize the future of the workers by disinvesting it. II. They had a right to be heard before and during the process of disinvestment. A downturn in prices would . It was contended that before disinvestment. Workmen have reason to believe that apart from the sale of 51% of the shares in favour of Sterlite Industries the Agreement postulates that balance 49% will also be sold to them with the result that when normally in such cases 5% of the shares are disinvested in favour of the employees the same would not happen in the present case. BALCO was. So it was liable. Further The cost of the Korba aluminium plant and Bidhanbag plant. i. They have lost their rights and protection under Articles 14 and 16 of the Constitution. UNION OF INDIA & Ors.3 ARGUMENTS ADVANCED By:- BALCO Employees Union: (Petitioner) I. Therefore it was better to sell the company when it was earning profits to get a good deal. In taking of a policy decision in economic matters at length. the workers’ unions had been making various representations to the Government which were considered by it before finalizing of various documents. by regarding BALCO as a State. So the employees were heard before taking the decision. Also merely because the workmen may have protection of Articles 14 and 16 of the Constitution. if interest of the workers is taken care off. Further the Process of disinvestment is a policy decision involving complex economic factors. According to government estimates. who was also Director of the company. illegal or uninformed. was also present. inasmuch as its policy decision may have an impact on the workers’ rights. There was a dialogue between the Government and the Union Leaders where it was culled out that the trade unions are not against the disinvestment. It is neither within the domain of the Courts nor the scope of the judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. The wisdom and advisability of economic policies of Government are not amenable to judicial review.4 have taken the company to the state of sickness from which it had recovered in 1988-89. a total of Rs 4. The cash reserve of Rs 437 crores accumulated by Balco by giving fewer dividends to the government was too little for the modernization of the company. Even though the workers may have interest in the manner in which the Company is conducting its business. A meeting was held in May. 2000 by the then Chairman and Managing Director with the Union leaders where the Joint Secretary of the Ministry of Mines. In addition thereto. nevertheless it is an incidence of service for an employee to accept a decision of the employer which has been honestly taken and which is not contrary to law. The entire rationale and process of disinvestment was explained to the workers through BALCO Samachar News letter. arbitrary. it does not mean that the . the principles of natural justice have no role to play. There is no case made out by the petitioner that the decision to disinvest in BALCO is in any way capricious. It is not for Courts to consider the relative merits of different economic policies.000 crores was required for the modernization and expansion of the company and it could be infused only by bringing in a strategic partner. Ramakrishnan. JUDGEMENT (B. AIR 1983 SC 75 Southern Structurals Staff Union v. When persons seek and get employment with such a company registered under the Companies Act. Article 12 of the Constitution does not place any embargo on an instrumentality of the State or “other authority” from changing its character and disinvesting itself. 1994 81 CompCas 389 Mad. P. Government had to give the workers prior notice of hearing before deciding to disinvest. it was a change of policy that disinvestment took place. P. 2 3 National Textile Workers’ Union and others v. can equally well disinvest. There is in law no such obligation to consult in the process of sale of majority shares in a company. In this process. An elaborate process was undergone and majority shares sold.): The employees have no vested right in the employer company continuing to be a Government company or “other authority” for the purpose of Article 12 of the Constitution of India. If the initial decision could not be validly challenged on the same parity of reasoning.. Ramakrishnan2 on the basis of facts. Venkatarama Reddi. When government chooses to run an industry by forming a company and it becomes its shareholder then under the provisions of the Companies Act as a shareholder. The employees cannot claim any right to decide as to who should own the shares of the company. Shivaraj V.R. While it was a policy decision to start BALCO as a company owned by the Government. N.5 erstwhile sole shareholder viz. it would have a right to transfer its shares. the decision to disinvest also cannot be impugned without showing that it is against any law or malafide. the change in the character of the company cannot be validly impugned. Management of Southern Structurals3 where it was held that the consent of the employees is not required for disinvest of a government company as it does not effect their right. The Supreme Court followed the case of Southern Structurals Staff Union v. Management of Southern Structurals. Thus the Honourable Supreme Court distinguished the present case with the landmark case of National Textile Workers’ Union and others v. Kirpal.R. it must be presumed that they accept the right of the directors and the shareholders to conduct the affairs of the company in accordance with law and at the same time they can exercise the right to sell their shares. (1994) IILLJ 1243 Mad . The Government has taken a policy decision that it is in public interest to disinvest in BALCO. Patil and P. JJ. The State which invested on its own wish. State of A. but not giving a pre-decisional hearing cannot be a ground for quashing the decision. 1997 AIR SCW 3361 .6 The company will not retrench any worker(s) who are in the employment of BALCO on the date of takeover of the management by the strategic partner. can impugn the same. It was precisely for this reason that safeguards were inserted in the Share Holders Agreement. the persons affected like the workmen. What has to be seen in exercise of judicial review of administrative action is to examine whether proper procedure has been followed 4 Samatha v. The service conditions are governed by the certified orders of the company and any change in the conditions thereto can only be made in accordance with law. P.4 is inapplicable as the legal provisions here are different.Daewoo Power and Essar Steel. The Supreme Court stayed all notices issued by the state government to Balco management asking it to show cause why the land leased to its plant not be cancelled as it was situated in a tribal land. Furthermore even with the change in management the land remains with BALCO to whom it had been validly given on lease. or for that matter any other party having an interest therein. interest and no decision affecting a huge body of workers’ can be taken without the prior consent of the State Government. It held that the ratio of the decision in Samatha v. other than any dismissal or termination of the worker(s) of the company from their employment in accordance with the applicable staff regulations and standing orders of the company or other applicable laws. (as confirmed by the shareholders agreement and the Senior Counsel on behalf of the company) The workers interests are adequately protected in the process of disinvestment. The land was validly given to BALCO a number of years ago and today it is not open the State of Chattisgarh to challenge the correctness of its own action. State of A. 551.5 crores was correct or not. If the decision is otherwise illegal as being contrary to law or any constitutional provision. The principles of natural justice would not be applicable and that the workers. There is no provision in law which would require a hearing to be granted before taking a policy decision. The court further said that it is evident that the Central Government was aware of the interests of the workers and employees as a class. would not have a right of being heard. The existing laws adequately protect workers.. It is not for this Court to consider whether the price which was fixed by the Evaluation Committee at Rs.. The court asked the government to justify its stand in canceling the land allotment to Balco while permitting such allotment to two other private companies . P. it is the prerogative of each elected Government to follow its own policy. . apart from the fact that the policy of disinvestment cannot be questioned as such.” This judgement facilitated the path of other successful privatizations. the facts herein show that fair. RATIO DICENDI OF THE JUDGMENT i. The policy of disinvestment cannot be questioned as such. unacceptable. it was held that the disinvestment by the Government in BALCO was not invalid. remarked. Wadhera) and therefore the court declined to entertain such PIL. that.L. CRITICAL ANALYSIS OF THE JUDGEMENT The Hon’ble Supreme Court. After having a long discussion on the concepts and the cases about PIL the court held that the decision to disinvest and the implementation thereof is purely an administrative decision relating to the economic policy of the State and challenge to the same at the instance of busy-body cannot fall within the parameters of Public Interest Litigation (as filed by by Shri B. Courts would interfere only if there was a clear violation of Constitutional or statutory provisions or non-compliance by the State with its Constitutional or statutory duties and none of these contingencies had arisen in this case. “Thus. Thus the policy of disinvestment followed by the Government of India was upheld by the Supreme Court stating that the decision to disinvestment and the implementation thereof is purely an administrative decision relating to the economic policy of the State. The allegations of lack of transparency or that the decision was taken in a hurry or there has been an arbitrary exercise of power is without any basis.7 and whether the reserve price which was fixed is arbitrarily low and on the face of it. just and equitable procedure has been followed in carrying out this disinvestment. while validating BALCO-disinvestment and dismissing the petitions.” ii. the facts herein show that fair. Therefore. Thus it can be concluded that the “Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. just and equitable procedure has been followed in carrying out this disinvestment. c) A 51 per cent equity sale at an indefensible price also undermines the value of the remaining stock that would be held by the government. As far as fear regarding the worker’s interest getting affected .an example of “selling family silver to butler. In my view once bidding process is finished. the Government lost an opportunity to lay down new norms of transparency b) A direct valuation of BALCO’s assets suggests that with an investment of just Rs. But the critics lovingly call it . it would have been better to have disclosed all the facts. the setting of the reserve price and the acceptance of Sterlite’s bid were all allegedly done within the span of a month. the valuation of the firm. e) The deal allegedly violates a Supreme Court order banning private sector units from running mines and industries in tribal population areas. In my view if the above mentioned points and criticisms would have been taken care of and the disinvestment was planned properly with the help of experts (economists. Hence in my thoughts the disinvestment was improper and ill managed.the government still has control over 49 percent of the equity holdings in the company which it could use effectively to safeguard workers’ interest. Thus. However. at a throwaway price is a questionable one for a host of reasons. So one cannot say it is over for the government. d) The whole procedure has been gone through in haste. the reserve price was not disclosed nor the value of the bids by Hindalco and Alcoa and whether they were higher or lower than the reserve price.8 By selling the controlling stake to a strategic partner what the company gets is a professional management with proven skills and expertise in the field of metal. Even though the bids had been invited some time back. Also. and the government’s decision has been communicated. a) The bids were valued by four different methods.550 crores Sterlite is to get control over assets that according to some are worth around 10 times that value. The move to affect a ’strategic sale’ of equity in the profitable and cash-rich public sector Bharat Aluminium Company Ltd. the value arrived at by these bids was not disclosed. It will also have right over the future cash flows in the form of dividends and could play a significant role in decision making. legal experts and sociologists) keeping in .” The Balco Disinvestment deal was at the center of controversy as opposition parties and worker unions at Balco had been fighting tooth and nail to see that the Disinvestment deal doesn’t get to see the light of the day. 1.cfm?abstract_id=1087593&http://www. the valuable & relevant materials cum supplements were extracted:a. at a higher rate. Further it has taken away the power of hearing and right of the employees to approach the courts for justice if their rights are affected.damodarcollege. So it can now take decisions at its whims and fancies and behave like an unruly horse.in/u rl?sa=t&rct=j&q=balco case supreme court&source. Everything done should be for the welfare of the nation and its people as a whole.org/doc/1737583/ b. Disinvestment in my view is a good and effective policy to revive the corporate sector owned by the government.9 mind its all effects. . it gave unlimited and unchecked powers in the hands of the executive.indiankanoon.org/dhiru_final/makarandvol3. Further there is no check on ongoing parallel politics and violations of law and contracts taking place after such disinvestment. http://www. which is at the threshold. But by holding that judiciary can’t interfere into policy matters and further employees do not have the right to challenge the administrative and policy decision of disinvestment of the company taken by the central government. A critical analysis of the BALCO case by TARUNA JAIN .google. CONCLUSION I seriously like to criticize this judgment because in my view it is the duty of the judiciary. But it needs to be free from politics and other curses and flaws it suffers from. http://www. http://papers. This judgement has given power and authority in the hands of private companies and left the employees to their fate.html c. to dispense justice and fairness. BIBLIOGRAPHY From the following sources.com/sol3/papers.co.ssrn. it would have been proved to be a successful and much accepted disinvestment.