2013 (10) TMI 851 - SC - Companies Law

Disinvestment in equity shares - Held that - What was involved in the present case was not the sale of assets but sale of equity capital. If after following the ICDR and on taking into consideration the relevant methodologies of valuation for sale of equity capital the price band of Rs. 226-245 per share was fixed, it cannot be said that the price band so fixed was unreasonable or sale of 10% equity capital by CIL was unfair. Where challenge is laid to a government policy, particularly economic policy, this Court does not interfere in such policy matter in its power of judicial review unless the impugned policy is found to be grossly arbitrary or unfair or unreasonable or irrational or violative of constitutional provisions or contrary to statutory provision - Writ dismissed.

Summary

Issues:
1. Alleged irregularities in the divestment of 10% equity of Coal India Limited (CIL) in October 2010.
2. Compliance with norms and policies in the equity disinvestment process.
3. Valuation methodologies applied in the Initial Public Offering (IPO) of CIL.
4. Challenge to the fairness of the sale of equity capital by CIL.
5. Judicial review of government economic policy in the context of the case.

Analysis:
The Writ Petition (Public Interest Litigation) raised concerns regarding the divestment of 10% equity of CIL in 2010, alleging irregularities and financial losses to the nation. It was claimed that the equity disinvestment proposal did not adhere to legal norms and government policies. The petitioner highlighted that powerful financial institutes acquired natural resources by paying Rs. 15,200 Crores, causing an alleged loss of Rs. 1.75 Lakh Crores to the exchequer.

The Supreme Court, after hearing arguments from the petitioner and the Additional Solicitor General, examined the compliance with regulations in the IPO process of CIL. It was presented that the IPO was conducted transparently following the rules set by the Securities and Exchange Board of India (SEBI) and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR). Various intermediaries were appointed competitively to ensure professional advice at each stage of the process.

Regarding the valuation methodologies applied, three approaches were utilized, including EV/EBITDA, Price to Earnings, and Price to Book ratios. The price band for the IPO was determined based on these methodologies, with the final range set at Rs. 226-245 per share. The petitioner contended that the assets valuation methodology should have been used instead.

The Court emphasized that the sale involved equity capital, not assets, and assessed the fairness of the price band set for the equity sale. It was concluded that if the valuation methodologies and ICDR were followed, and the price band was within a reasonable range, the sale of 10% equity by CIL could not be deemed unfair. The Court stated that interference in government economic policies is limited unless they are grossly arbitrary, unfair, or unconstitutional.

Ultimately, the Court dismissed the Writ Petition (PIL) in limine, finding no grounds for judicial intervention in the economic policy matter under Article 32 of the Constitution of India.