Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
st
% Date of decision: 21 December, 2018
+ LPA 732/2018, Cav. 1209/2018 & CM Nos. 54238-54240/2018
ALL INDIA IDBI OFFICERS ASSOCIATION
..... Appellant
Through: Mr. Rajiv Bansal, Sr. Adv. with
Mr. Pranav Sachdeva and
Mr. Jatin Bhardwaj, Advs.
versus
UNION OF INDIA & ORS.
..... Respondents
Through: Mr. Tushar Mehta, SG, Ms. Maninder
Acharya, ASG, Mr. Sandeep Sethi,
Sr. Adv. with Mr. Siddharth Barua,
Mr. Sahil Sood, Mr. Harshul
Choudhary & Mr. Viplav Acharya,
Advs. for R-1 & 2
Mr. Sanyam Saxena, Adv. with
Mr. Sahil Khanna and
Mr. J.D. Baruah, Advs. for R3
Mr. Rana Mukherjee, Sr. Adv. with
Mr. Dipak K. Nag and Mr. Apurva
Upmanyau, Advs. for R-6
Mr. H.S. Parihar and Mr. Kuldeep S.
Parihar, Advs. for RBI.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE V. KAMESWAR RAO
V. KAMESWAR RAO, J. (ORAL)
CAV. 1209/2018
Learned counsel for the caveator has put in appearance.
Caveat stands discharged.
LPA 732/2018 Page 1 of 17
CM Nos. 54239-54240/2018
Exemption allowed subject to all just exceptions.
Applications stand disposed of.
LPA 732/2018
1. This Intra-Court appeal is filed by the All India IDBI
Officers’ Association challenging the order of the learned Single
Judge dated December 17, 2018 whereby the learned Single Judge
has dismissed the writ petition.
2. The appellant in the writ petition had challenged the action
of the respondent Government of India reducing its shareholding in
IDBI Ltd. below 51%. The appellant had also sought a direction
that the Life Insurance Corporation of India should not acquire the
controlling stake of 51% in the IDBI Ltd. The appellant had also
impugned the direction granted by respondent No.6 Insurance
Regulatory and Development Authority of India to the LIC to
acquire more than 15% of equity share capital of IDBI Ltd.
3. Mr. Rajiv Bansal, learned Senior Counsel for the appellant
by conceding the position of law that the disinvestment is the
prerogative of the Government, would at the first instance submit
that the dilution of the Government’s shareholding in IDBI Ltd.
would materially alter the conditions of service of employees and
officers inasmuch as they would no longer be employees of a
Government company. Hence, they would be deprived of benefits
of the policies, in vogue in IDBI Ltd., which are available to them
as employees of a Government company.
LPA 732/2018 Page 2 of 17
4. That apart, it is his submission that the decision of the
respondent No.1 to reduce its stake in IDBI Ltd. is contrary to the
assurance held out by the Government before the Parliament at the
time of considering Industrial Development Bank (Transfer of
Undertaking and Repeal) Bill, 2002. He states that this transaction
is violative of Section 5(1) of the Industrial Bank (Transfer of
Undertaking and Repeal) Act, 2003.
5. Further, he has challenged the decision of LIC to acquire the
majority stake in IDBI Ltd being arbitrary, unreasonable and in
breach of the fiduciary duty owed by the Board of LIC to various
policy holders. According to him, the Board of Directors of LIC
has failed to exercise due diligence and has, in effect, abdicated its
powers, inasmuch as the Board has approved the decision to acquire
the majority stake in IDBI Ltd. without fully examining the
ramifications of the decision to make certain investment, more
particularly, when IDBI Ltd. is a loss making entity and any
investment to acquire a majority stake in IDBI Ltd. would result in a
significant drain of resources of LIC at the cost of policy holders.
The aforesaid three submissions of Mr. Bansal are similar to the
ones advanced before the learned Single Judge. In support of his
submissions, he has further drawn our attention to Section 3 (4)(f)
of the Insurance Act, 1938 under which the Insurance Regulatory
and Development Authority of India can suspend or cancel the
registration of an insurer if the insurer carries on any business other
than insurance business or any prescribed business.
6. On the submission No.1, the learned Single Judge held that:-
LPA 732/2018 Page 3 of 17
(i) By virtue of Section 5(1) of the IDBI Repeal Act, 2003 all
employees and officers of the Development Bank had an option to
accept the employment with IDBI Ltd. on the same terms and
conditions and with the same rights and obligations as they would
have had in respect of the employment with the Development Bank
if its undertaking had not vested with IDBI Ltd.
(ii) The assurance held out to them is with regard to the terms
and conditions of their service and not as to the nature of the
employer – IDBI Ltd.
(iii) There was no assurance that can be read with Section 5(1)
of the IDBI Repeal Act, 2003 to the effect that IDBI Ltd. would
continue to be a Government Company.
(iv) The Section 4(1) of the IDBI Act, 1964, which required the
Government of India to hold at least 51% of the total share capital
in the Development Bank, stood repealed by virtue of Section 15(1)
of the IDBI Repeal Act, 2003 and in any event was not applicable to
IDBI Ltd., which is a company incorporated under the Companies
Act, 1956.
(v) The question whether employees have any vested right in
their employer continuing to be a Government company, is no
longer res integra. This was considered by the Supreme Court in
Balco Employees Union (Regd.) v. Union of India and Ors.: (2002)
2 SCC 333. In that case, the Supreme Court had in unequivocal
terms held that the employees had no such vested right.
LPA 732/2018 Page 4 of 17
(vi) The Supreme Court had also held that disinvestment in the
shares of any government company did not result in change of the
employer or the employment.
(vii) The rights and obligations of employees viz-a-viz the
employer are determined by the contractual terms of employment.
The employees of a company constitute the human resource of an
entity which is deployed for achieving the goals and objects of the
company. The equity held by the shareholders in a company are
assets of the shareholders and they have full right to deal with the
same. Their rights to deal with the property are not subject to the
employment contract between the companies and its employees.
7. The learned Single Judge, finally did not accept the
contention that the disinvestment by the Government of India of the
shares in IDBI Ltd. would amount to a change in the terms and
conditions of services between IDBI Ltd. and its employees so as to
fall foul of Section 5(1) of the IDBI Repeal Act, 2003.
8. Insofar as the submission No.2 is concerned, the learned
Single Judge has held as under:-
(i) The contention that the Government of India is estopped
from selling its stake in IDBI Ltd. as it violates the assurance held
out in the Parliament during the discussions relating to the Industrial
Development Bank (Transfer of Undertaking and Repeal) Bill,
2002, is also unmerited. The aforesaid Bill was referred to the
Standing Committee on Finance. The said Committee recommended
certain amendments which were debated in the House.
LPA 732/2018 Page 5 of 17
(ii) During the course of discussions before the Parliament, it
was proposed to include the following proviso:-
“Provided that the Central Government shall
always remain the majority shareholder of the
Company and at no point of time its shareholding
shall fall below 51%”
(iii) The said amendment was not carried out. During the course
of the debate, the then Finance Minister had informed the members
of Rajya Sabha that the Government believed that the same could be
done through executive action. The Finance Minister also held out
an assurance that the Government would maintain IDBI Ltd. as a
Development Financial Institution. It appears that the issue of
Government holding was considered in the aforesaid context.
(iv) The statements made before the House almost 15 years
earlier, in a debate relating to a legislative activity, would not
preclude the Central Government from diluting its stake in IDBI
Ltd.
(v) The legislation enacted by the Parliament after the debate
did not contain the amendment that was sought to be introduced.
(vi) The statements made before the House cannot substitute or
override the statue so enacted by the Parliament.
(vii) The Parliament was conscious of the import of not including
the proviso as proposed.
LPA 732/2018 Page 6 of 17
(viii) The principles of promissory estoppel are wholly
inapplicable in the aforesaid context. He did not accept that the
statements made in Parliament amounted to a representation made
to the employees and they had acted to their prejudice based on such
representation. The statements made before the House were in the
context of enacting a legislation (the IDBI Repeal Act, 2003), and
the said Act has to be interpreted in conformity with the settled
principles of statutory interpretation.
(ix) There is no ambiguity in the language of the IDBI Repeal
Act, 2003 and there is no scope to read any provision into the said
enactment which proscribes the Government from reducing or
divesting its stake in IDBI Ltd.
(x) If the Government is in breach of any of its assurance to the
Parliament, it would be for the members of the House to take up the
matter. It, certainly, does not create any right in favour of the
petitioner.
9. On the third submission, the learned Single Judge has, held
as under:-
(i) The decision of LIC to invest in IDBI Ltd. is a commercial
decision and no interference in these proceedings would be
warranted unless it is established that the said decision is illegal or
fails the Wednesbury test, that is, it is so unreasonable and arbitrary
that no sensible person could possibly take such decision. The
Courts would also interfere in cases where a decision making
process itself is otherwise vitiated.
LPA 732/2018 Page 7 of 17
(ii) This Court cannot reappraise the decision of the LIC Board
to invest in IDBI Ltd. on merits. This Court does not have the
wherewithal or the competence to examine the merits of a
commercial decision made by LIC. Given the limited scope of
judicial review, the examination by this Court must be confined to
the decision making process. The first time that the Board of LIC
was moved to consider the aforesaid proposal was by a circulation
of an agenda note dated 02.05.2018. The said note was captioned
“Re: Diversification in the Area of Banking” and had sought the
approval of the Board to take initiatives for taking a controlling
stake in or taking over a bank. The said note did not mention IDBI
Limited, but merely sought approval of the Board to take
controlling stake in ‘a bank’. On 03.05.2018, the LIC’s Board
approved the following resolutions:-
“RESOLVED THAT the Board accords
inprinciple approval for LIC of India to take
initiatives for taking controlling stake in/taking
over a Bank.
RESOLVED FURTHER THAT the Chairman,
LIC of India is authorized to initiate steps in
the matter including obtaining necessary
Government/Regulatory approvals.”
(iii) Immediately on the next day – that is, on 04.05.2018 – the
Chairman of LIC addressed a letter to the Secretary Department of
Financial Services, Government of India seeking clearance to go
ahead in the matter. The said letter did not specifically mention
LPA 732/2018 Page 8 of 17
acquiring any stake in IDBI Ltd. but alluded to the speech of the
Finance Minister for transformation of IDBI Limited. A plain
reading of the said letter also indicates that there had been certain
informal discussions between the Chairman and Officials of the
Government of India. Thereafter, LIC sent communications to
IRDAI seeking the approval to acquire 51% shares of IDBI Ltd. and
also took the further steps in the said direction.
(iv) On 04.05.2018, the LIC’s Board had only considered a
proposal for acquiring majority stake in a bank. It is also clear that
the proposal for acquiring majority stake in IDBI Ltd was on the
anvil but was not specifically placed before the LIC’s Board. He
found no infirmity with such procedure, as it is common for the
executives of a company to complete the ground work and finalise
the details of a transaction before seeking the final approval in the
Board of Directors. It is apparent that the Chairman of LIC had
engaged in informal talks with the officials of the Government for
acquiring stake in IDBI Ltd. It is also possible that the first
overtures for LIC to acquire such stake may have been made by the
Central Government (although there is no material to establish the
same). However, the LIC’s decision to acquire 51% stake in IDBI
Ltd. cannot be faulted as the approval of LIC’s Board had been
obtained on various occasions as the transaction had progressed.
(v) The IRDAI had, by a letter dated 19.06.2018, also enquired
whether LIC’s Board had approved the proposal to acquire
controlling stake in IDBI Ltd. In response to the same, LIC had
explained that its Board had already approved initiations of steps for
LPA 732/2018 Page 9 of 17
acquiring a controlling stake in a bank and a specific proposal
regarding the acquisition of controlling stake in IDBI Ltd. would be
placed before LIC’s Board after approval from the Government of
India.
(vi) After obtaining the approval of IRDAI, a specific approval
was sought by LIC’s Board. On 05.07.2018, the LIC’s Board
granted its approval to undertaking the due diligence based on data
available in public domain for acquiring the stake of 51% in IDBI
Ltd. It also granted approval to appoint two Merchant bankers, one
external audit firm and one rating agency for appraising the
acquisition of 51% stake in IDBI Ltd. It is apparent from the above
that even at that stage LIC’s Board had not granted its final approval
for acquiring 51% shares in IDBI Ltd.
(vii) LIC’s Board once again considered the transaction on
16.07.2018. The minutes of the meeting indicate that detailed
discussions were held in the Board Meeting held on 16.07.2018.
Several issues were discussed including the huge NPAs of IDBI
Ltd. and the strategy for LIC to manage the same. After considering
the same, the LIC’s Board passed the following resolutions:-
“RESOLVED THAT LIC of India may acquire
controlling stake upto 51% stake in IDBI Bank.
RESOLVED THAT LIC of India to have proper
structured mechanism to ensure that IDBI bank
is professionally managed under the
supervision of a professional Board and to
have an effective oversight of the performance
LPA 732/2018 Page 10 of 17
of the investment in the Bank as stipulated by
IRDAI and also suggested by consultants.
RESOLVED FURTHER THAT the Chairman,
LIC of India is authorised to initiate process of
taking approvals from GOI, RBI, SEBI, other
related agencies and to initiate further process
with IDBI Bank and decide related matter.”
(viii) LIC’s Board had also raised several questions as to the
strategy to turn around IDBI Ltd. Mr Bhushan had contended that in
view of the questions raised by LIC, its resolution to grant approval
was clearly without application of mind and amounted to abdication
to its obligation to safeguard the interests of its stake holders. This
contention was, however, found not persuasive. Undoubtedly, LIC’s
Board had raised questions with regard to the affairs of IDBI Ltd.
and had directed preparation of an action plan to turn around IDBI
Ltd. With regard to the IRDAI’s decision to reduce LIC’s stake over
the years, LIC’s Board had also directed that LIC bring out a
strategy paper. However, these issues related to how LIC would
proceed further after the acquisition; it does not establish that LIC’s
Board had any reservation as to the investment in IDBI Ltd. On the
contrary, it clearly establishes that LIC’s Board was conscious of
the state of affairs of the IDBI Ltd. and despite the issues had
resolved that LIC acquires a controlling stake in IDBI Ltd. The
minutes of the meetings of the Board of LIC held on 16.07.2018
clearly indicate that the LIC’s Board’s decision to grant approval
LPA 732/2018 Page 11 of 17
was after deliberation and after the LIC’s Board was fully apprised
of the affairs of IDBI Ltd.
(ix) The decision of LIC’s Board is a commercial decision and,
therefore, it is not open for the Court to examine the merits of the
said decision. Mr Bhushan had, undoubtedly, made a compelling
case to establish that LIC’s decision was erroneous. He had also
contended that the said decision had been thrust upon LIC by the
Government of India. Mr Bhushan may have been correct in his
submissions; investment in IDBI Ltd. may or may not be beneficial
for LIC and its stakeholders; but that is not a controversy that this
Court is required to enter into. Even if Mr Bhushan’s contention in
this regard is accepted, this Court cannot supplant its opinion over
that of the Board of LIC. This Court is also unable to accept that the
decision to invest in IDBI Ltd. is so perverse and unreasonable that
no sensible person would take the same. LIC believes that acquiring
a bank would be of strategic importance and this Court has no
reason to question the same.
(x) Once it is established that the Board of LIC was aware of
the state of affairs of the IDBI Ltd. and yet had approved the
investment in their commercial wisdom, no further examination is
necessary. He held that LIC’s Board had once again discussed the
matter at a meeting held on 20.08.2018 and had taken decisions to
take further steps to implement the decision to make investment in
IDBI. This also establishes that the LIC’s Board has been apprised
from time to time as to the progress of the transaction and has
consciously approved the same.
LPA 732/2018 Page 12 of 17
10. We find, even on the aspect of whether the decision of the
Insurance Regulatory Development Authority of India to relax the
provisions of Regulation 9 of the Insurance Regulatory and
Development Authority of India (Investment) Regulations, 2016 is
arbitrary and unreasonable, the learned Single Judge has held as
under:-
(i) The plain language of Regulation 14 of the Investment
Regulations is that the Board of IRDAI is duly empowered to relax
the rigours of Regulation 9 of the Investment Regulations either by
a general or a special order.
(ii) The petitioner also does not dispute that IRDAI is vested
with such powers. However, the petitioner claims that such exercise
is arbitrary, unreasonable and without application of mind. Thus,
essentially, the petitioner challenges the manner in which the IRDAI
has exercised such powers.
(iii) It is settled law that every power is coupled with a duty to
exercise the same for the purposes for which such power is vested.
Thus, the IRDAI is required to modify or relax the applications of
the specified provisions of the Investment Regulations, only if the
same is warranted.
(iv) The Investment Regulations are silent as to the factors to be
considered by IRDAI while exercising its powers under Regulation
14 (2) or the grounds on which such power is required to be
exercised. However, it’s apparent that where an insurer presents a
bona fide reason, which in view of IRDAI warrants departure from
LPA 732/2018 Page 13 of 17
the Investment Regulations, it would be incumbent upon IRDAI to
grant the same.
(v) The IRDAI is also required to bear in mind the object for
regulating the investment of an insurer while considering whether to
relax any restrictions as specified in the Investment Regulations.
The principal object in framing the Investment Regulations is to
insulate the policyholders from unwarranted risks and to ensure that
the insurers do not default in their commitment to the policyholders.
(vi) In the present case, the proposed investment for acquisition
of majority shares in IDBI Ltd. is ₹10,000 cr. which, the LIC states,
is 2.5% of yearly incremental investment and 0.4% of total
investment assets. Thus, evidently, there is no reason to believe that
the said investment would expose the policy holders to any
unwarranted risk. The LIC has not been exempted from investing
the specified percentage of its controlled funds in Government
Securities (which is perceived as involving minimal risk). The
proposed investment is within the limit set for investment in other
than approved investment, as specified in Section 27A(2) of the
Insurance Act; that is, it is 15% of the funds as specified in Section
27(1) of the Insurance Act.
(vii) The safeguards put in the Investment Regulations for
ensuring that LIC does not default in its commitments and the
investments made are within the parameters stipulated for protecting
the interests of the policy holders, are duly complied with.
(viii) The restrictions stipulated for making investment in any one
company are two-fold. The first is the extent of ‘controlled funds’
LPA 732/2018 Page 14 of 17
that can be invested in one company (the investee company); and
the second is the extent of the capital of the investee company that
can be acquired. The object of the first type of restriction is to avoid
excessive exposure in an investee company to minimise the risk.
Admittedly, this restriction has been complied with.
(ix) The object and rationale of imposing the second restriction –
that is, to ensure that an insurer does not acquire more than 15%
equity stake in any one investee company – is to ensure that LIC
remains a plain investor and not a promoter and the insurer does not
use the funds to acquire managerial control of companies. A
miniscule and relatively insignificant percentage of the controlled
funds of LIC may be sufficient to acquire controlling stakes in
companies having a low market capitalisation. Although, this
acquisition may have little risk for the policy holders, it does have
the propensity to dilute the role of LIC as a plain investor.
Permitting such acquisition could also mean use of public funds for
take-over of companies (hostile or otherwise). Such investments
may result in LIC taking up a role where its interest as an investor
conflict with its interest to further the business of an investee
company.
(x) The decision of IRDAI to relax the application of
Regulation 9 of the Investment Regulations by a special order must
be viewed in the above perspective – it is not a relaxation of the risk
profile of investments but a permission to LIC to take up controlling
stake in the investee company.
LPA 732/2018 Page 15 of 17
11. We also find that the learned Single Judge has even
examined the relevant factual context in which Insurance
Regulatory Development Authority of India’s permission was
sought and granted and on examination of the same, the learned
Single Judge in para 99, has held as under:-
“99. IRDAI had examined the proposal and there was
sufficient material for IRDAI to take the decision that it
did. This Court is not called upon to supplant its view
over that of IRDAI or examine IRDAI’s decision on
merits. The scope of judicial review in these proceedings
is limited. This Court does not sit in appeal on the merits
of the decision taken by IRDAI. It is apparent that there
was sufficient material for IRDAI to accept that the
policyholders’ funds were duly protected and that LIC
had a sufficient reason to make a strategic investment in
IDBI Ltd. Thus, IRDAI’s decision cannot be called into
question in these proceedings.”
12. The aforesaid conclusion of the learned Single Judge on all
the three submissions made by Mr. Bansal, before us now, are,
justified keeping in view the factual as well as the legal aspect of
the matter. We concur with the same. Even the Supreme Court has,
in catena of judgements, reiterated that in matters of policymaking,
the courts would normally not interfere, until and unless it is
categorically shown that the exercise of legislative judgment
appears to be palpably arbitrary. A Court cannot strike down a
policy decision taken by the Government merely because it feel that
LPA 732/2018 Page 16 of 17
another policy would have been fairer or wiser or more scientific or
logical. It is not within the domain of the Court to weigh the pros
and cons of the policy or to test the degree of its beneficial or
equitable dispossession. (Ref. Parisons Agrotech (P) Ltd. and Ors.
v. Union of India and Ors. (2015) 9 SCC 657, IVS Gahlot v.
Union of India and Ors. (2018) 8 SCJ 517,
13. Insofar the submission of Mr. Bansal relatable to Section
3(4)(f) of the Insurance Act is concerned, the same does not impress
us, in view of our conclusion above upholding the decision of the
learned Single Judge on all the aspects including the Government of
India reducing its stake in IDBI Ltd. and LIC in acquiring 51%
stake in IDBI Ltd. and the decision of IRDAI, approving the
decision. The appeal is dismissed.
CM No. 54238/2018 (for stay)
Dismissed as infructuous.
V. KAMESWAR RAO, J
CHIEF JUSTICE
DECEMBER 21, 2018 /ak
LPA 732/2018 Page 17 of 17