1994 (4) TMI 236 - HC - Companies Law

Issues Involved:
1. Disinvestment of 11% of shares without considering intrinsic value.
2. Impact of disinvestment on workers' interests.
3. Historical inadequacies in the disinvestment process.
4. Violation of SEBI guidelines.
5. Arbitrary decision to use the tender method over public issue.
6. Lack of consultation with stakeholders.
7. Potential undervaluation of shares.
8. Violation of principles of natural justice and legitimate expectations.

Issue-Wise Detailed Analysis:

1. Disinvestment of 11% of shares without considering intrinsic value:
The petitioner argued that the disinvestment of 11% of shares was being carried out without considering the intrinsic value of the shares. The petitioner emphasized that the intrinsic value of Bharat Electronics' shares was significantly higher than the price at which they were being sold. The petitioner highlighted that the assets of Bharat Electronics, including its land, plant, and machinery, were grossly undervalued in the books, and their current market value was many times higher.

2. Impact of disinvestment on workers' interests:
The petitioner contended that the workers were vitally interested in the management of the company and that the disinvestment process disregarded their interests. The petitioner argued that the workers should be given the opportunity to buy at least 26% of the shares to effectively participate in the decision-making process of the factory's management. The petitioner referenced the SEBI's Guideline on Employees Stock Option Scheme, which recognizes the legitimate interest of workers in the future of their factory.

3. Historical inadequacies in the disinvestment process:
The petitioner criticized the previous disinvestment process, citing the Comptroller and Auditor General (CAG) of India's report, which highlighted several inadequacies. The CAG report pointed out that the approach to disinvestment lacked necessary preparatory work, and the valuation and sale of shares were arbitrary. The petitioner argued that the current round of disinvestment was occurring without addressing the criticisms and recommendations made by the CAG in its 1993 report.

4. Violation of SEBI guidelines:
The petitioner argued that the Government had not followed the SEBI guidelines for disclosure and investor protection in the disinvestment process. The petitioner pointed out that the brochure issued by the Government for the latest round of disinvestment violated SEBI guidelines, contrasting it with the prospectus issued by Videocon Leasing and Industrial Finance Ltd., which adhered to SEBI guidelines.

5. Arbitrary decision to use the tender method over public issue:
The petitioner contended that the Government's decision to disinvest through the tender method instead of a public issue was arbitrary and unreasonable. The petitioner argued that a public issue would have resulted in a more transparent and democratic process, allowing a wider dispersal of shares and preventing cartelization. The petitioner provided a comparative analysis of the advantages of disinvestment by public issue over the tender method.

6. Lack of consultation with stakeholders:
The petitioner argued that the disinvestment process was carried out without any consultation with the management or workers of Bharat Electronics, violating principles of natural justice. The petitioner emphasized that the workers and the Union should have been consulted and given a chance to participate in the process of disinvestment.

7. Potential undervaluation of shares:
The petitioner argued that the shares of Bharat Electronics were being sold at grossly undervalued rates, resulting in a significant loss of money to the exchequer. The petitioner highlighted that the shares were being sold at around 10% of their actual value, and the Government's failure to revalue the assets of Bharat Electronics contributed to this undervaluation.

8. Violation of principles of natural justice and legitimate expectations:
The petitioner argued that the Union of India's decision to disinvest shares without consulting the workers or management of Bharat Electronics violated principles of natural justice and breached legitimate expectations. The petitioner contended that the decision was in violation of Article 14, read with Article 43A, of the Directive Principles of State Policy, which emphasizes workers' participation in management.

Conclusion:
The High Court of Karnataka, acknowledging the far-reaching implications of the issues raised, directed the respondents to file their statement of objections at the earliest. The Court issued an interim direction restraining the respondents from taking any decision regarding the disinvestment of the remaining 69% of shares until further orders. The petitioner was allowed to move the Vacation Bench for further interim orders if necessary.

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