Facts in Brief

During the course of the ongoing economic reforms, the Public Sector Disinvestment Commission advised the Government of India that BALCO, a Government company, needed to be privatised by transferring 40% of its shares immediately and reducing its holding to 26% within two years, with the aim of fully disinvesting its stake in favour of investors at the appropriate time. The recommendation was later revised so that 51% of the Government’s stake in BALCO would be transferred, along with a transfer of management. This was approved by the Cabinet Committee on Disinvestment.

Advertisements were accordingly issued and a detailed process followed, resulting in the selection of M/s Sterling Co. as the Strategic Partner, to whom the Government’s 51% stake would be transferred for ₹551 crores. Discussions also took place in the Rajya Sabha and the Lok Sabha, where a motion to disapprove the proposed disinvestment failed. The transfer of stake was then challenged before the Supreme Court and various High Courts. Clubbing the claims together, the Court framed the following issues:

• Whether executive policies are reviewable by the judiciary?
• Whether the decision to disinvest BALCO is constitutionally valid?

Arguments

Those challenging the disinvestment argued that: (a) by reason of disinvestment, the workmen had lost their rights and protection under Articles 14 and 16 of the Constitution, and since this was an adverse civil consequence, they had a right to be heard before and during the process of disinvestment; and (b) normally, in cases of this nature, 5% of the shares were disinvested in favour of the employees, which was not done in the present case. The disinvestment was therefore unsustainable.

In reply, it was argued that: (a) public sector companies were constantly sinking into increasing difficulties, and it was in the public interest to disinvest them; and (b) the wisdom and advisability of the Government’s economic policies are not amenable to judicial review.

Judgment

The Apex Court held that: (a) it could not look into the executive wisdom behind a policy, especially in matters regarding economic management; and (b) the legal challenges made to the disinvestment of BALCO were not valid, and consequently, the decision to disinvest BALCO was constitutionally valid. The reasons given by the Apex Court were as follows:

• Non-government employees working in a company cannot claim a superior right than a government servant, nor can they impugn its change of status in terms of social security measures and the protection of their employment and rights.
• In taking a policy decision in economic matters, the principles of natural justice have no role to play; they would not require a hearing of the workers prior to decision-making.
• When the Government chooses to run an industry by forming a company, and becomes its shareholder, then under the provisions of the Companies Act it has, as a shareholder, a right to transfer its shares.

For the Common Man

In the course of delivering this judgment, the Court came down heavily on frivolous Public Interest Litigations (PILs). In fact, this case set the trend for the in limine dismissal of PILs where the petitioners are unable to establish that a substantial public interest is involved. The Court also declared that public interest is the paramount consideration in national governance. Therefore, if in the public interest the Government thought it fit to take over a sick company to preserve the productive unit and the jobs of those employed therein, the Government may do so, reducing the continuing drain on its limited resources. This decision is in tune with the growing recognition of the efficiencies of the market mechanism.