Tuesday, Dec 06, 2022

What SC said on BALCO sale

All these facets — including the question of valuation; that of transparency — came up for review in the BALCO case.Disinvestment ...

All these facets — including the question of valuation; that of transparency — came up for review in the BALCO case.

Disinvestment is a policy matter, the Supreme Court held. A motion was put to the Lok Sabha. It read, ‘‘That this House disapproves the proposed disinvestment of Bharat Aluminum Company Ltd.’’ It was defeated.

Citing a string of earlier judgements, the Supreme Court re-affirmed that the Courts would only intervene if the decisions in implementing that policy had been patently unfair; or illegal; or so unreasonable that no reasonable man would have taken them; or if the procedures followed had violated the norms set for the task. In words that bear repetition, as without the kind of judicial restraint that they embody, governance would be brought to a standstill, the Supreme Court re-affirmed what it had held in State of MP versus Nandlal Jaiswal, a case involving the grant of licences to distilleries that at least one prominent member of the present Government will remember well.

‘‘We must not forget,’’ the Court warned, ‘‘that in complex economic matters every decision is necessarily empiric and it is based on experimentation or what one may call ‘trial and error method’ and, therefore, its validity cannot be tested on any rigid ‘a priori’ considerations or on the application of any strait-jacket formula. The Court must, while adjudging the constitutional validity of an executive decision relating to economic matters, grant a certain measure of freedom or ‘play in the joints’ to the Executive. ‘The problem of Government’ as pointed out by the Supreme Court of the United States in Metropolis Theater Co. v. State of Chicago ‘are practical ones and may justify, if they do not require, rough accommodations, illogical, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not discernable, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review. It is only its palpably arbitrary excesses which can be declared void.’

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‘‘The Government, as was said in Premian Basin Area Rate cases, is entitled to make pragmatic adjustments which may be called for by particular circumstances. The Court cannot strike down a policy decision taken by the State Government merely because it feels another policy decision would have been fairer or wiser or more scientific or logical. The Court can interfere only if the policy decision is patently arbitrary, discriminatory or mala fide…’’

The Supreme Court recalled and reiterated what it had held earlier in G B Mahajan v. Jalagaon Municipal Council, namely that the Courts shall respect the ‘‘administrator’s right to trial and error, as long as both trial and error are bona fide and within the limits of authority’’. The Supreme Court recalled and reiterated what it had held earlier in Peerless General Finance and Investments Co. Ltd. V. Reserve Bank of India, namely that ‘‘It is not the function of Courts to sit in judgement over matters of economic policy and (these) must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts.’’

It recalled and reiterated what it had held in another case — MP Oil Extraction v. State of MP — that at least one senior member of the present Government will remember, namely, ‘‘Unless the policy framed is absolutely capricious and, not being informed by any reason whatsoever, can be clearly held to be arbitrary and founded on mere ipse dixit of the Executive functionaries thereby offending Article 14 of the Constitution or such policy offends other constitutional provisions or comes into conflict with any statutory provisions, the Court cannot and should not outstep its limit and tinker with the policy decision of the executive functionary of the State.’’


The Supreme Court recalled and reiterated what it had held in State of Punjab v. Ram Lubhaya Bagga, namely, ‘‘When Government forms its policy, it is based on a number of circumstances on facts and law, including constraints based on resources. It is also based on expert opinion. It would be dangerous if the Court is asked to test the utility, beneficial effect of the policy or its appraisal based on facts set out in affidavits. The Court would dissuade itself from entering into this realm which belongs to the Executive…’’

The charge that is being hurled now was hurled then also: the Company has been grossly undervalued, opponents shouted. And there was ‘‘proof’’ too. At the hearing, the then (Congress-I) Government of Chattisgarh asserted that it had been willing to buy the equity of BALCO on offer for a sum higher than the amount for which Government had sold it. What the Court said on facts as well as procedure is worth recalling. In part because the charge is a staple one — there is almost a rule of public discourse today: when you can’t think of anything else to shout about, shout about disinvestment; and when on disinvestment you can’t think of anything to shout about, shout about valuation! And in part because the procedures that the Supreme Court commented upon, and commended, are exactly the ones that were followed in each case, including the disinvestment of hotels.

Eight companies had submitted expressions of interest for BALCO, the Supreme Court recorded. Those of two were rejected by the Global Advisors. And those of two companies were clubbed as the parent owners of the two were identical. Two of the five remaining dropped out in the subsequent months. Three remained in the fray.


The Global Advisors had appointed a valuer from among the list of approved valuers maintained by the Income Tax Department — I still recall the calumny that was hurled at this hapless being by persons out to score debating points and stall the process.

The valuations had been done by the four internationally accepted methods. Not only was there a substantial difference between the value that different methods yielded, each method yielded a range — the valuations of the 51% of the BALCO equity that was being disinvested came from Rs 300 to Rs 507 crores. The Evaluation Committee — of officials — had deliberated over the appropriateness of the respective methods as well as the bases for the particular figures. And recommended that the reserve price be fixed at Rs 514.4 crores.

One of the three remaining bidders did not submit any bid. Two bids were received. The one from HINDALCO — at Rs 275 crores — was well below the reserve price. The other, from Sterlite — at Rs 551.5 crores — was clearly above it. The latter had been accepted.

In any event, the Court examined the allegations in detail. It also went into every step of the procedures that had been followed — for selecting advisors; for selecting the valuer; for fixing the reserve price; for evaluating the bids, etc. After recording these in detail, the Court observed in regard to the range of valuations that different methods had yielded,

‘‘What the assets will fetch, is ultimately reflected in the offer which is received… The perception in the market, therefore, clearly was that 51% shares of BALCO along with its management were not worth more than Rs 551.5 crores. The only other bidder who had expressed interest was HINDALCO whose bid was only Rs 275 crores. Under the circumstances, when the Government had decided to disinvest in BALCO by accepting a bid far in excess of the reserve price which was fixed by the Evaluation Committee, the said decision cannot, under any circumstances, be faulted.’’


And remember that in this case the bid was only seven per cent higher than the reserve price — against which, in the case of the Juhu Centaur, the bid was 53 per cent higher than the reserve price. The Court added,

‘‘Whether the reserve price should have ben 514.4 crores or more appears to be immaterial when the best price which has been offered for the sale of 51% stake in BALCO after global advertisement was only Rs 551.5 crores. There is no suggestion that there was any other company or institution which had or could offer more than the said amount. When proper procedure has been followed, as in this case, and an offer is made of a price more than the reserve price then there is no basis for this Court to conclude that the decision of the Government to accept the offer of Sterlite is in any way vitiated.’’


But what about the offer of the State of Chattisgarh to buy 51% of the equity of BALCO for a value higher than Rs 551.41 crores? The Supreme Court dismissed the farcical ‘‘offer’’ in one sentence: ‘‘This offer did not see the light of day till the start of the present litigation.’’ I should add that the very man — the then Chief Minister of the State — who had made the wildest allegations about the transaction — that a hundred crores had changed hands; who had declared that should any employee of Sterlite so much as set foot in the State, his legs would be shattered to pieces; that very man was to declare later, ‘‘Sterlite is scripting the success of Chattisgarh!’’

During the hearing, of course, the Advocate General of the State hurled the other staple accusation: the procedure that has been followed ‘‘lacked transparency’’. The Supreme Court repelled this accusation roundly. After setting out the procedure in detail, it held:


‘‘The system which was evolved was completely transparent. It was made known. Transparency does not mean the conducting of the government business while sitting on the crossroads in public. Transparency would require that the manner in which the decision is taken is made known. Persons who are to decide are not arbitrarily selected or appointed. (As a contrast to procedures that were followed for selecting advisors, members of committees of officials, the Cabinet Committee itself, recall, for instance, the manner in which an officer was specially brought from Tamil Nadu to dispose of the disproportionate assets case against Lalu Yadav!) Here we have the selection of the Global Advisor and the strategic partner through the process of issuance of global advertisement. It is the Global Advisor who selected the valuer who was already on the list of valuers maintained by the Government. Whatever material was received was examined by high powered committee known as the IMG (the Inter-Ministerial Group) and the ultimate decision was taken by the Cabinet Committee on Disinvestment. To say that there has been lack of transparency, under these circumstances, is uncharitable and without any basis.’’ (On all this, BALCO Employees Union v. Union of India and others, (2002) 2 Supreme Court Cases 333.)

When the very same procedures were followed in the case of the hotels; when the very same committees — right up to the Cabinet Committee on Disinvestment — examined and decided every step, for what is the new Government going to prosecute us?

To be concluded (final part on Monday).

The writer is former union disinvestment Minister



First published on: 25-06-2005 at 12:00:00 am
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