NATIONAL LAW UNIVERSITY, JODHPUR

““JUDICIALLY SCRUTINIZING” DISINVESTMENT

DECISIONS – CRITICALLY ANALYZING THE BALCO
RULING”

SUBMITTED TO SUBMITTED BY

MS. VIDUSHI PURI MS. ATYOTMA GUPTA

FACULTY OF INVESTMENT LAW ROLL NO. 1162

SEMESTER VIII, B.B.A LL.B (BUSINESS LAW HONORS)

Submission Date
4th April 2018

NATIONAL LAW UNIVERSITY, JODHPUR

Winter Semester: January-May 2018
 ACKNOWLEDGEMENT

On the completion of this project we find that there are many persons to whom we would like to
express our gratitude, since without their help and co-operation the success of this educative
endeavour would not have been possible.

We welcome this opportunity to express our sincere gratitude towards our Investment Law
professor, Ms. Vidushi Puri for her continuous guidance and encouragement throughout the
course of this work.

We are grateful to the IT Staff for providing all necessary facilities for carrying out this work.
Thanks are also due to all members of the Library staff for their help and assistance at all times.
We would also like thank our friends and classmates for being helpful and a source of continuous
support and for keeping the spirit of competition alive in us.

We would also like to express our deepest gratitude towards our parents who have been the real
driving force for this work.

This project has provided us with an ideal opportunity to express ourselves and we profusely
thank all those who have lent a helping hand.

Atyotma Gupta

2
 TABLE OF CONTENTS

Research Methodology ................................................................................................................. 4

Abstract .......................................................................................................................................... 5

Introduction ................................................................................................................................... 5

The extent of judicial review in the disinvestment policies ....................................................... 7

I. Fundamental Rights and Judicial Review: The Post-Liberalization Era and Beyond ........ 8

II. Judicial review of the economic policies ............................................................................ 11

III. Justiciability of Disinvestment Policies.............................................................................. 12

BALCO Judgment- A critical analysis ..................................................................................... 12

I. What was BALCO? ............................................................................................................ 12

II. Critical Observations by the Author on the ruling:- .......................................................... 14

III. Aftermath of the Ruling; - Implications that followed the Ruling ...................................... 15

Author’s Note .............................................................................................................................. 16

References .................................................................................................................................... 19

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 RESEARCH METHODOLOGY

Topic: - “Judicially scrutinizing” disinvestment decisions – Critically analyzing the

BALCO ruling

The author has adopted a doctrinal methodology in preparing this project. Heavy reliance has
been placed on secondary sources of information such as acknowledged books and treatises,
news reports, published articles by academicians and experts. The author believes that the
content of the project has been majorly derived out of these sources. Lastly, the author has
formed an independent opinion on whether the decision in the BALCO case in the larger
interests of the nation, considering various parameters.

As the project is largely based upon one decision of the Supreme Court, therefore the author does
not deem it fit to rely on any primary information.

4
 ABSTRACT
This project seeks to examine the boarder and the evolving role of the India judiciary in the era
of globalization by analyzing the decision making in rights-based challenges to economic
liberalization, privatization and the development policies of the government. While in most of
the cases the courts have shown a deferential attitude in reviewing these projects and policies, it
has been in many of the cases active and instrumental in remaking and reshaping the regulatory
frameworks, bureaucratic structures, accountability norms and also in redefining the terrain of
fundamental rights that non-governmental organizations and other litigants have invoked while
challenging these policies. Therefore, this project aims to examine the constitutional validity of
the disinvestment process.

This can be done, firstly by analyzing the scope of the powers of the higher judiciary to review
and adjudicate upon the executive policy decisions in general and in particular for example
setting the maximum limits etc. secondly the constitutional validity of the entire process of
disinvestment can be examined on the anvil of socialism, which appears dominantly in the
preamble of the Indian constitution. Thirdly, the process of disinvestment can be scrutinized
when the same is being done in the crucial sectors such as oil and gas, petroleum in the wake of
right to life under Article 21 of the Indian constitution and right to subsidized oil and gas.

INTRODUCTION
Privatization is an exclusive subject of governmental policy in various countries.1 The rationale
behind privatizations may be majorly attributed to political and economic state of affairs in each
country. However, it gives rise to various legal issues. Apart from the constitutionality and
legality of the decision on disinvestment there are public law issues in administrative law that
usually crop up with privatization decisions. On the other hand, there are ample evidences that
disinvestment has been a major source of revenues for the Indian government. One of such
evidences can be found in the Ranking non-EU countries by total privatization revenues
released for the year of 2013-14 where India was ranked third.2 The disinvestment in government

1
Saul Estrin and Adeline Pelletier, Privatization in developing countries: What are the lessons of experience?,
Economic and Private Sector Professional Evidence and Applied Knowledge Services (EPS-PEAKS), November
2015, accessed from https://assets.publishing.service.gov.uk/media/57a08977ed915d3cfd000264/Topic _Guide _Pri
vatisation_Nov.pdf.
2
The report can be accessed on https://www.feem.it/m/publications_pages/20151716304PB_Annual_Report_R2013-
2014.pdf.

5
companies would serve the twin purpose of funding the development of infrastructure and
helping the denationalized units perform competitively.3

These are the reasons sometimes cited by the government for disinvesting a company. However,
it is ignored multiple times that there exists a huge difference between privatization and
disinvestment. Disinvestment is usually understood to mean opening up the stocks and securities
of the public companies for investments by private sectors completely.4

Since the 1980s, globalization has fundamentally transformed relationships between the nation
states as well as the terrain of domestic political, constitutional and regulatory frameworks that
govern economic and development policies, especially in the developing countries. 5 As a part of
this global trend, the developing countries have shifted from the state-socialist policies toward
economic liberalization, privatization and development policies in line with the broader
globalization of the world economy.6

The previous decade, which ushered in the new economic policy tailored towards liberalization,
saw a momentous shift in the policy towards government owned and controlled enterprises
popularly known as Public Sector Undertakings [hereinafter PSUs]. The earlier protectionist
regime gave way to a scenario wherein the State, realizing the need for withdrawing from
economic activities, began handing over the control of these PSUs to private bidders. This
process of deregulation through the mechanism of disinvestments has brought to the fore several
questions as to its legal validity vis-à-vis safeguarding the constitutional credo of socialism and
the vision of our founding fathers to ensure state control of key economic sectors. Lately, the
process of disinvestments has been extended to crucial sectors of the economy such as the
petroleum and mining sector and thus is likely to have an impact on the lives of millions of
people.

3
Loizos Heracleous, Privatisation: Global Trends and Implications of the Singapore Experience, International
Journal of Public Sector Management 5 (1999): 432 – 44.
4
Puja Mehra, It is disinvestment, not privatization, The Hindu, May 12, 2016, accessed from http://www.thehindu
.com/opinion/columns/it-is-disinvestment-not-privatisation/article8586358.ece.
5
Jagdish Bhagwati, In defense of globalization, (2004); Joseph Stiglitz, Globalization and its discontents, (2002).
6
Barbara HarrissWhite et al., Globalisation, Economic Citizenship and India s Inclusive Developmentalism, in
Subrata K. Mitra, CITIZENSHIP AS CULTURAL FLOW: STRUCTURE, AGENCY AND POWER (2012).

6
 THE EXTENT OF JUDICIAL REVIEW IN THE DISINVESTMENT POLICIES

The economy of a country must include an interpretation of public good which is based on the
conception of justice. It should guide the reflections of the citizen when he considers questions of
economic and social policy.7 An economic system is not only an institutional device for
satisfying existing wants and needs but a way of creating and fashioning wants in the future. This
idea was put forth by economists such as Marshall and Marx.8

The reforms of 1991-1993 were not just about macroeconomic stabilization. It was about taking
the first step towards freeing India from its old isolationism.9 For the first time in a millennium,
India had the courage to face the real world—to compete in global export markets, to attract
foreign investment, and to allow the messy hustle-bustle of free markets. Even more importantly,
it opened itself intellectually and culturally to the outside world—a precondition for economic
prosperity as well as a socio-cultural renaissance.10

After the adoption of the new economic policy in 1991, there were problems faced by the
importers in the country mainly due to the Liberalization of trade and foreign investment – the
‘globalization’ aspect of India’s reforms –has not been sufficient to promote widespread
competitiveness, nor to overcome or rectify the poor state of India’s infrastructure. Thus the
economic reform agenda in India remained lengthy as well as complicated.11

In Centre for Public Interest Litigation v. Union of India, the Supreme Court of India restrained
the Central Government from proceeding with disinvestment, resulting in Hindustan Petroleum
Corporate Limited (HPCL) and Bharat Petroleum Corporate Limited (BPCL) ceasing to be
Government companies without appropriately amending the concerned statutes suitably.12 It was

7
John Rawls, ‘A Theory of Justice’, 259 (Delhi: Universal Law Publishing Co. Pvt. Ltd., 2000).
8
Bruce R. Scott, The Political Economy of Capitalism, June 27, 2006, Harvard Business School, accessed at http://
www.hbs.edu/faculty/Publication%20Files/07-037.pdf.
9
Rajeev Dhavan, Disinvestment and Parliament, The Hindu, September 19, 2003, accessed from http://www.the
hindu.com/2003/09/19/stories/2003091901620800.htm.
10
Sanyal Sanjeev, Indian Renaissance, The: India's Rise After A Thousand Years Of Decline, (August 18, 2008);
also see, Manmohan Singh's 1991 Budget: the day that changed India forever, The Hindu, July 24, 2016, accessed
from http://www.thehindu.com/business/Economy/Manmohan-Singhs-1991-Budget-the-day-that-changed-India-for
ever/ article14505003.ece.
11
Michael Gasiorek et al., Qualitative analysis of a potential Free Trade Agreement between the European Union
and India, Centre for the Analysis of Regional Integration at Sussex, accessed from http://trade.ec.europa.eu/doclib/
docs/2007/july/tradoc_135346.pdf.
12
Centre for Public Interest Litigation v Union of India (2012) 3 SCC 1.

7
argued that the decision of the Government to sell majority of shares in HPCL and BPCL to
private parties without parliamentary approval or sanction is contrary to and violative of the
provisions of the ESSO (Acquisition of Undertaking in India) Act, 1974, the Burma Shell
(Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil
Refining India Limited and all the Undertakings in India for Caltex India Limited) Act, 1977.13

I. FUNDAMENTAL RIGHTS AND JUDICIAL REVIEW: THE POST-LIBERALIZATION

ERA AND BEYOND
Over the years the Indian judiciary has come to acknowledge and fine-tune the legal proposition
that the framing of policy is within the exclusive domain of the executive and the Courts,
including a Writ Court, cannot interfere with the same in the exercise of their power of judicial
review.14 In R.C Cooper v. Union of India15, the Supreme Court, while considering the vires of
the law on Bank Nationalization, expounded that, “The Court will not sit in appeal over the
policy of the Parliament in enacting of law”. The inclination of the judiciary to distance itself
from the executive policy making is also apparent from the judgment in Bennett Coleman Co. v.
Union of India16 wherein the Newsprint Policy of the government was impugned. On that
occasion too, the reasoning was clearly that the dispute concerned a matter of government policy
and ordinarily the Court could not adjudicate on such policy measures.

Following the adoption of the New Economic Policy, the Supreme Court provided greater clarity
in articulating the scope of judicial review under Article 14 and Article 21 in a series of decisions
involving challenges to privatization of the telecom sector, the privatization and disinvestment of
the industrial and mining sector, and other cases. In most of these cases, the Court upheld and
endorsed the governments' policies of economic liberalization.17

Since the 1990s, and well into the twenty-first century, the Supreme Court of India has
effectively redefined the scope and terrain of the fundamental rights in a series of decisions
involving challenges to government liberalization and privatization, and development policies. In
calibrating this new "globalization rights infrastructure" and attendant modes of scrutiny for

13
Id.
14
Shrilekha Vidyarthi v. State of U.P., AIR 1991 SC 537; Government of A.P. v. M. Shrinivasa Reddy, (1998) 8
SCC 765; Bihar State Electricity Board v. Usha Martin Industries, AIR 1997 SC 2489.
15
R.C Cooper v. Union of India, (1970) 1 SCC 248.
16
Bennett Coleman Co. v. Union of India, 1973 AIR 106.
17
David B. H. Denoon, Cycles in Indian Economic Liberalization, 1966-1996, 31 COMP. POL. 43, 52-55 (1988).

8
globalization policies, this article explores three main facets of the Court's decision-making and
role.18

First, the Court has redefined and limited its own role in the domain of globalization policies
based on the justices' own conceptions of the proper role of the Court, and their own
understanding of the norms and values that should be advanced in adjudicating globalization
cases.19 In embracing these particular role conceptions, the Court has effectively redefined the
normative structure and discourse of globalization by privileging certain norms and values in its
adjudication, including norms of transparency, competitiveness, regulatory independence, and
high growth models of development. In doing so, this article argues that while the Court has
applied a lower and more limited standard of review to globalization policies, it has effectively
deployed rights as "structuring principles" for adjudicating the fairness, legality, and propriety of
government economic policies and actions involving privatization and disinvestment, rather than
allowing these rights to serve as strong checks on government policies and actions. In the
development context, this article suggests that rights have been deployed as "substantive-
normative principles" that are used to assess and validate the legality and optimality of
development projects and policies under a highly deferential mode of review. 20 In deploying
rights in this way, the Court has redefined and reshaped the processes and regulatory structures
that govern in these areas.

Second, the Court's new globalization rights framework has effectively meant the creation of
new "asymmetrical rights terrains" wherein the rights of certain interests and stakeholders
(including private corporate interests) are privileged above others (labor, farmers, villagers).21
The Court has thus restricted the scope of the fundamental rights so as to limit their promise to
laborers, farmers, and others whose rights have been infringed or diminished by globalization
policies, while enhancing the rights of certain entities including private corporate interests
challenging unfair privatization and disinvestment policies. This broader trend includes
weakened recognition of the rights of laborers in challenging privatization and disinvestment

18
R.K. Garg v. Union of India, (1981) 4 SCC 675.
19
Manoj Mate, Globalization, Rights, and Judicial Review in the Supreme Court of India, 25 Pac. Rim L. & Pol'y J.
643 (2016)
20
Delhi Science Forum v. Union of India, (1996) 2 SCC 405.
21
Arun K. Thiruvengadam & Piyush Joshi, Judiciaries as Crucial Actors in Southern Regulatory systems: A Case
Study of Indian Telecom Regulation, 6 Reg. Governance 327, 334-35 (2012).

9
policies, and the rights of farmers and villagers in challenging large scale development
projects.22

While dealing with matters pertaining to liberalization, privatization and disinvestment, the Apex
Court has consciously embraced a particular conception of its own role as an institution in
adopting a deferential and limited scope of review of these policies.23 Despite its careful
delineation of a highly deferential and limited judicial role in cases involving government
policies and actions in economic policy-making, the Court's decisions suggest that it has not been
neutral when it comes to the underlying substantive norms behind these policies.24 Although the
Court has adopted a highly deferential standard of review, its decisions reveal discursive
narratives evincing broad support for the goals of liberalization and privatization.25

In the early 1990s, the Court adjudicated challenges to a series of reform policies involving
India's telecom sector.26 In Delhi Science Forum, the Court adjudicated a challenge to the
adoption of the National Telecom Policy, whereby the government shifted toward privatization
of the industry. Pursuant to this policy, the government issued licenses to companies that made
tender offers for telecom licenses. The Court ultimately upheld the privatization of the telecom
sector. In rejecting arguments challenging the merits of the underlying policies, the Court held
that it could not question the merits of the policy and that the proper place for substantive
challenges was Parliament and the political process, not the courts.27

The Court in Delhi Science Forum sought to refine Article 14's non-arbitrariness standard for
review of government and administrative decisions involving economic policy. According to the
Court, review under this standard must also be limited to determining whether such decisions
are: 1) made in bad faith; 2) based on irrational or irrelevant considerations; or 3) made without
following the prescribed procedures required under a statute (illegality). In applying this limited
scope of scrutiny, the Court ultimately upheld the telecom policy as legal and consistent with the

22
Reliance Airport Developers Ltd. v. Airports Authority of India, (2006) 10 SCC 1.
23
Madhavi Divan, Telecast Tussle: A Sorry Spectacle, (2004) 4 SCC (Jour) 52.
24
Cass Sunstein, Standing and the Privatization of Public Law, 88 COLUM. L. REv. 1432 (1988).
25
Aditya Bhattachajea, Indian Competition Policy: An Assessment, 38(34) EcoN. POL. WEEKLY 3561-74 (2003).
26
Delhi Science Forum v. Union of India, (1996) 2 SCC 405.
27
Manoj Mate, Elite Institutionalism and Judicial Assertiveness in the Supreme Court of India, 28 TEMPLE INT'L
& COMP. L.J. 361, 421-24 (2014).

10
Indian Telegraph Act, and also upheld it on the grounds of reasonableness.28 The standard
applied in Delhi Science Forum drew on the approach applied in Tata Cellular v. Union of
India.29

While the Court's exercise of Article 14 non-arbitrariness review has been heavily restricted and
limited, the Court has also greatly expanded its role as an anti-corruption institution, policing
corruption in the processes of privatization and liberalization. The Court has thus expanded the
scope of its review to directly impugn and challenge government auctions of public resources
including the 2G Telecom Scam Case (2012) and the Coal-Gate case (2012)30. In these cases,
the Court has scrutinized the auction processes for allocation of both the telecom spectrum and
coal blocks to private entities based on Article 14 arbitrariness review, while at the same time
also playing an active role in investigating allegations of corruption. These cases illustrate that
despite the narrow and limited scope of judicial review articulated by the Court for economic
policies, the Court continues to play an active role in policing corruption in privatization and
liberalization policies.

II. JUDICIAL REVIEW OF THE ECONOMIC POLICIES

In the matter of Centre for Public Interest Litigation v. Union of India and another31
challenging the disinvestment in regard to HPCL/ BPCL, the Supreme Court upheld the
challenge to the proposed strategic sale of HPCL and the proposed dilution in equity in the
case of BPCL to below 51 per cent through an Offer for Sale of the Government's equity. The
Supreme Court took the view that, since both these companies were established through the Acts
of Parliament under which the undertakings and assets of private companies were acquired and
transferred to these Government Companies, it was not open for the Government to proceed with
disinvestment that would result in HPCL and BPCL ceasing to be Government Companies
without appropriately amending the statutes concerned. The Court also held that setting up of
Government Companies is by way of Parliamentary approval for expenditure from the
Consolidated Fund of India and hence disinvestment of Government Companies can therefore be

28
Id. at 417-18.
29
Tata Cellular v. Union of India (1994) 6 SCC 651.
30
Subramanian Swamy v. A. Raja, (2012) 3 SCC I (allocations of the telecom license were quashed in this
judgment), Subramaniam Swamy v. A. Raja (2012) 9 SCC 257 (Court adjudication of investigation into 2G scam),
Manohar Lal Sharma v. Union of India, (2014) 9 SCC 516 (cancelling Coal Block mining licenses).
31
Centre for Public Interest Litigation v. Union of India and another, (2012) 3 SCC 1.

11
only with approval of Parliament. This Judgment laid down principles, which would apply to all
cases of disinvestment of Government companies. Subsequently, several ongoing disinvestment
proposals were challenged in various High Courts.

III. JUSTICIABILITY OF DISINVESTMENT POLICIES

Disinvestment was initiated by selling undisclosed bundles of equity shares of selected central
PSEs to public investment institutions, which were free to dispose of these shares in the booming
secondary stock market. One of the main understandings behind divesting is that the state needs
to withdraw its hands from the non-strategic areas to give a free-hand to the private sector
undertakings to expand their operations. Another obvious reason for disinvesting is to remove
the loss making public sector understandings dependence on the state’s exchequer. The
implementation of these decisions of the government has given rise to the questions of its
justiciability. This issue was also discussed at length in the BALCO case (which shall be
analyzed further in the project).

The rule which has been evolved with respect to multiple judgments concerning the justiciability
of these decisions is it involves questions of legislatures and executive powers to make economic
decisions which shall not generally be subject to judicial review and scrutiny as such. 32 The court
cannot express their opinion as to whether any such policies can be adopted or not as court
cannot run the governments. It is expressly entrusted and divided amongst the three organs of the
state. Any such approach taken by the court will clearly and directly run counter to the
Montesquien concept of separation of powers.33

BALCO JUDGMENT- A CRITICAL ANALYSIS

I. WHAT WAS BALCO?

BALCO was a PSU engaged in the manufacture of aluminum and had plants at Korba in the
State of Chhattisgarh and Bidhanbag in the State of West Bengal.34 The Company has integrated
aluminum manufacturing plant for the manufacture and sale of aluminum metal including wire

32
Id.
33
Ruchi Singh, Seminar on the Power of Judicial Review: Scope and Dimensions, March 18, 2016-March 20, 2016,
National Judicial Academy, accessed from http://www.nja.nic.in/Concluded_Programes_2015-16/P-978%20Readi
ng%20Material.pdf.
34
Information about the company on its official website, http://www.balcoindia.com/about-us/profile/.

12
rods and semi-fabricated products. However in 1996, attempts were made to disinvest
Government of India stake in the same and reduce it to 26%.35

The Government invited bids from private parties for acting as a strategic partner in the
undertaking. There were five serious bidders36 and the bid of Sterile Industries was accepted for
being the highest. It is to be noted that the entire process was conducted by professional
merchant bankers and the prospective buyers on their part had undertaken due diligence of the
company.

In BALCO Employees Union v. Union of India37, the Court upheld the government's decision to
disinvest in and sale of the Bharat Aluminum Corporation to a private company, named as
Sterlite. The Court held that economic policies must be reviewed under a highly deferential
rational basis scrutiny, and that courts should limit their review to whether policy decisions are
absolutely capricious, arbitrary and unreasonable, or violative of constitutional or statutory
provisions. The Court upheld the disinvestment and found that it had not been shown to be
"capricious, arbitrary, illegal or uninformed and that the process was completely transparent. The
majority's decision was noteworthy in that it endorsed the need for disinvestment and change in
economic policies.38

The Court upheld the disinvestment and found that it had not been proved to be capricious,
arbitrary, illegal or uninformed and that the process was completely transparent. The majority's
decision was noteworthy in that it endorsed the need for disinvestment and change in
economic policies.39

The primary issue involved in the BALCO case was regarding, the validity of the decision of the
government of India to disinvest and transfer 51% shares of M/s Bharat Aluminum Company

35
Invest in stake holding via disinvestment, The Economic Times, February 03, 2015, accessed from https://blogs.
economictimes.indiatimes.com/et-editorials/invest-in-stakeholding-via-disinvestment/.
36
A selling story, The Outlook, January 28, 2018, accessed from https://www.outlookindia.com/magazine/story/a-
selling-story/299730:- The bidders were Sterile Industries (India) Ltd., Hindalco Industries Ltd., Tranex Holding
Inc., Indian Minerals Corporation Plc., ALCOA, USA, MALCO.
37
Bharat Aluminum Company, Ltd. Employees Union v. Union of India, (2002) 2 SCC 333.
38
The court cited the observations in the case of M.P. Oil Extraction v. State of Madhya Pradesh, (1997) 7 SCC
592.
39
Id at 355.

13
Ltd. {hereinafter referred to as Balco} The question that arose for consideration in that case was,
whether such a decision to disinvest is amenable to judicial review?

The petition was dismissed and the Supreme Court held that, "the process of disinvestment is a
policy decision involving complex economic factors. The courts have consistently refrained from
interfering with economic decisions as it has been recognized that economic expediencies lack
adjudicative disposition and, unless the economic decision, based on economic expediencies is
demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to
reason, that the courts would decline to interfere". (It is important to note here that BALCO was
not created by any act of parliament40) The Supreme Court held that in such a case the
appropriate forum for testing policy is parliament and not the court.41

II. CRITICAL OBSERVATIONS BY THE AUTHOR ON THE RULING:-

There were various reasons given by the Bench in refusing to interfere in the disinvestment
decisions and policy stances taken by the Government in this case. All the reasons can be
summed up and be explained by virtue of only one reason. The court held that India is a
democratic country and hence it is the prerogative of each elected government to follow its own
policy.42 Change in the government may result and it does result almost every time a shift in the
focus or changes in the economic policies of the government due to difference ideologies of the
political parties.

The Author believes that the decision given by Hon’ble Justice Kirpal can be qualified as a little
harsh. Though the Apex Court was wise enough to recognize that merely because a decision has
been taken by a decision making authority, which in opinion of some is not the best alternative,
does not necessarily imply that the decision is constitutionally improper, however, the Court
should have been mindful of the fact that the enterprise in question was government company in
an otherwise backward area, hence a lot of aspirations of those employed were attached to the
same. In the long run, this concern was addressed to by the rehabilitation package. Nonetheless,

40
Rahul P. Dave, Balco revisited, The Hindu, April 07, 2001, accessed from http://www.thehindu.com /2001/04/07
/stories/05072524.htm.
41
T.N. Srinivasan, Economic Reforms and Global Integration, Center for Research on Economic Development and
Policy Reform (CREDPR), Stanford University, 2001, accessed from http://globalpoverty.stanford.edu/sites/default
/files/publications/120wp.pdf.
42
J Venkatesan, Supreme Court upholds BALCO disinvestment, The Hindu, December 11, 2001, accessed from
http://www.thehindu.com/2001/12/11/stories/2001121100300100.htm.

14
a considerate approach would have been more helpful. As a consequence of decision in BALCO,
all policy decisions of the executive branch have been left outside judicial review.

The most vital observation required here is that BALCO was not a statutory corporation, but was
a government company43. The enterprise had been created by means of an executive order in
exercise of its constitutional power44 and hence its character could be altered by the same means.
It is also noteworthy at this juncture that there was nothing in the Memorandum of Association
or Articles of Association of the company which prescribed a special route for exit of
Government equity.

It is also important to note while laying down the decision the significance of the judgment far
transcended the specifics of the BALCO transaction as it enunciates far-reaching principles
that will influence the tenor of jurisprudence on economic affairs for long. The most pertinent
example is of the case of Centre for Public Interest Litigation v. Union of India45 wherein the
disinvestment of HPCL and BPCL was approved on the grounds that since the disinvestment of
BALCO was already allowed therefore there is no case made out whereby it could be proved
unsuited to the Indian context though, in reality the process of disinvestment was never in
fact approved in the BALCO case based upon the merits of the case.

III. AFTERMATH OF THE RULING; - IMPLICATIONS THAT FOLLOWED THE RULING

As the major challenge in this case was against the policy of disinvestment, the court did not
decide upon it as the court did not enter the merits of the case. But non-justiciability of the policy
gave a silent approval to the government to proceed with the decision. Thus the court supported
the revival of the national economy with the support of private lines. The court clearly avoided
the socialist concept46 upon which the Indian constitution is based. The state also has a duty to
ensure that the entire wealth of the country and the resources are not concentrated in private
hands.47

43
Section 617, Companies Act, 1956.
44
Article 299, Constitution of India.
45
Supra Note 31.
46
Constitution of India, Preamble.
47
Id, Article 39.

15
With respect to the adherence of the natural justice principles, the Court held that the principles
of natural justice did not apply even in case the rights of the employees were affected as regards
the change of their employer.48 The court held that in the disinvestment process the principles of
natural justice have no role to play at all in any case. This sounds innocuous as the Employees,
being connected with the manufacturing and other process in a much closer manner than any
other body had, at least, the minimum right to put their views before the Court. Thus the
participation of employees in the betterment of their organization at the Board level was also
discouraged.

This position was again followed in the case of All India ITDC Workers Union and Ors. v.
ITDC and Ors.49. The apex court observed that since disinvestment is a policy decision of the
government, therefore it should be least interfered into by the courts. The court also held that the
Government employees have no absolute right under Article 14, 21 and 311 of the Constitution
of India and that the Government can abolish the post itself.

From an investor’s perspective, it is discouraging to know that by virtue of the BALCO ruling,
the method used by the government to compute the capital of the entity is beyond any challenge
and judicial scrutiny as it falls in the administrative discretions. In this case, the accounting
method used by the government to compute the reserve price of the entity was the one with the
lowest result. This was not questioned by the court at all.

AUTHOR’S NOTE
Government of India in the pre-economic reform era was predominantly a producing state.50
There were large public sector undertakings (‘PSU’) performing core industries.51 Private sector
was accorded a very restricted role, the same also being heavily regulated. However by means of
the Industrial Policy of 1991, the paradigm underwent a sea change. 52 Attempt was made to
empower the private sector to assume a larger role and the problems creeping in PSUs were

48
Supra note 37, ¶ 47 and 48 (contentions); ¶ 57 and 58.
49
All India ITDC Workers Union and Ors. v. ITDC and Ors., AIR 2007 SC 301.
50
Prof. Deepak Gupta, Economic Growth in the Post Liberalisation Era, International Journal of Engineering
Technology Science and Research, Volume 2 Issue 3, March 2015, accessed from http://www.ijetsr.com
/images/short_pdf/1426342536_profdeepak_ijetsr.pdf.
51
Id.
52
Vijay Vir Singh (CUTS International), Regulatory Management and Reform in India, Background Paper for
OECD, accessed from https://www.oecd.org/gov/regulatory-policy/44925979.pdf.

16
acknowledged. The economy was in chronic state and it was opined that only market based
mechanisms could restore its vitality. Such a shift in policy is in tune with the widespread move
away from public ownership since it was initiated in the late 1970s in the UK, and Chile.53

The honorable Apex Court in the celebrated judgment of Ram Jawaya Kapoor v. State of
Punjab54 has held that the determination of policy is in the domain of the Executive.
Determination includes the initiation of legislation, the maintenance of order, the promotion of
social and economic welfare, the direction of foreign policy, in fact the carrying on or
supervision of the general administration of the State. Therefore, there remains no doubt that the
government had the power to decide as to the adoption of a policy of disinvestment. And hence
this postulate forms the fundamental basis behind the BALCO Ruling.

The silent approval of the disinvestment process by the Apex Court also symbolizes the fact that
the Court also felt it in the interest of national interests and the economy on the whole. This the
Court expounded in a later case when it approved the sale of HPCL and BPCL on similar lines as
BALCO. This ruling was an attempt on the part of the Court to define its own limits on judicial
review. It also stretched the scope for the exercise of administrative powers in making policy
decision. The limits of Public Interest Litigation vis-à-vis disinvestment were also laid for the
first time.

The author believes that a stricter view of disinvestment/privatization is required. The

Government is no longer restricted to disposing off only loss making ventures. Mahanavratnas
like NTPC have also witnessed a dilution in governmental holdings55. Hence caution must be
exercised that major state enterprises created through years of toil are not offloaded into the
market at uncompetitive rates.

Rule of Law is the essence of governance in India. The Rule of Law principle comprises a
requirement of "government according to law". The ethos of "government according to law"
requires the prerogative to be exercised in a manner which is consistent with the basic principle

53
World Bank Group, Privatization and Deregulation: A Push Too Far?, accessed from http://www1.worldbank.
org/prem/lessons1990s/chaps/06-Ch06_kl.pdf,
54
Ram Jawaya Kapoor v. State of Punjab, AIR 1955 SC 549.
55
Shareholding Pattern of NTPC Limited for the quarter ending 31.12.2017, dated 17.01.2018, accessed from http:/
/www.ntpc.co.in/sites/default/files/downloads/shareholdingpattern31122017.pdf.

17
of fairness and certainty.56 This approach should be extended to economic policy making as well.
Over the years the Court has witnessed immense litigation on series of economic decisions of the
Government. Very simply put the Court has been an active participant in the economic debate
but has expressed its inability to do much.

It is thus likely that the process of disinvestments would stand up to the technical test of
constitutional validity. Yet, no one can brush aside the grave impact that concentration of wealth
in the hands of a few private players could have on the poor. Therefore, it is for the government
of the day to act according to the conscience of the nation and devise mechanisms that would
control the negative impact of disinvestments. Especially, disinvestments in the petroleum and
mining sector should, at least in the initial stages, be tempered by some price control mechanism
that would allow the government to control the prices of these essential commodities affecting
the lives of millions and the entire economy as a whole.

56
Epuru Sudhakar v. Govt. of A.P., AIR 2006 SC 3385.

18
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22