1997 (9) TMI 436 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the second round of disinvestment by the tender system.
2. Repetition of mistakes pointed out by the Comptroller and Auditor-General in the second round of disinvestment.
3. Necessity of prior consultation with management and employees' unions before disinvestment.
4. Requirement to reserve 26% of shares for employees to fulfill the constitutional goal of workers' participation under Article 43A.
5. Obligation to work out an employees' stock option scheme in consultation with the unions.
6. Reasonableness of the offer price of Rs. 121 per share to employees.
7. Alleged discrimination in fixing the share price for BEL employees compared to other PSEs.

Issue-wise Detailed Analysis:

Re: Points (a) and (b):
The petitioners argued that the Government of India should have excluded BEL from the list of PSEs selected for disinvestment and that the second round of disinvestment was conducted in haste, resulting in shares being sold below market price. They contended that the Government should have generated investor enthusiasm and revalued BEL's assets before fixing the issue price. However, the court found that the second round of disinvestment did not repeat the mistakes of the first round. The shares were sold separately, offered to a broad range of purchasers, and included an offer to employees at a discount. Wide publicity was given, and the reserve price was fixed with reference to relevant factors. The court concluded that there was no basis for the petitioners' complaints regarding the second round of disinvestment.

Re: Points (c) to (g):
The petitioners sought prior consultation with the company and its employees before disinvestment, reservation of 26% of shares for employees, and an employees' stock option scheme. The court held that disinvestment by the Government is an act of sale of shares by the owner and does not require prior consultation with the company or its employees. The disinvestment did not change the company's character as a public sector undertaking, nor did it affect employees' conditions of service. The court also found no merit in the claim that the offer price of Rs. 121 per share was excessive or discriminatory. The offer price was based on a 15% discount on the last available disinvestment price, and the same pricing formula was applied uniformly across several PSEs. The court concluded that the petitioners were not entitled to the reliefs sought.

Additional Observations:
The court emphasized the importance of workers' participation in the management and capital of the company, as envisaged by Article 43A of the Constitution. It suggested that the Government should formulate a scheme for effective workers' participation in the capital, including reasonable discounts and payment terms for employees purchasing shares. The court directed the Government to evolve a satisfactory scheme for meaningful implementation of the disinvestment policy.

Conclusion:
The court found no irregularity or arbitrariness in the second round of disinvestment and held that the petitioners were not entitled to the reliefs sought. However, it directed the Government to formulate a scheme for effective workers' participation in the capital of PSEs, ensuring that the policy of disinvestment is implemented meaningfully and in accordance with its letter and spirit.