S.K.Dhaon, J. - (1.) THE validity of the Uttar Pradesh State Cement Corporation Limited (Acquisition of shares) Ordinance, 1991 (hereinafter referred to as the Ordinance) has been challenged in this petition by two Petitioners. The first is the company incorporated under the Companies Act, 1956. The second, a citizen of India, is a share holder of the aforesaid company.
(2.) THE U.P. State Cement Corporation Limited (hereinafter referred to as the corporation) was incorporated as a Government company wherein all the share holders were of the State Government. The Corporation comprises three cement factories which were situated at Chruk, Dalla and Chunar (Kajhrahat). The corporation sustained huge losses right from the year 1972 every year except during the year 1982 -83 On 16th April, 1990, the Principal Secretary, Industries, Uttar Pradesh Government, gave out that the State Government intended to privatise the Corporation. On 20th April, 1990, a Cabinet decision was taken to convert the corporation, a wholly public sector, into a joint sector corporation. For this purpose a meeting was convened on 19th May, 1990 and in that meeting leading manufactures of cement in the country were invited. On the said date a meeting was held at the office of the Principal Secretary, Industries, which was attended by 25 manufacturers. They were informed that the State Government proposed to convert the corporation into a joint sector unit and that the State Government would not make any further investment and that there would be no retrenchment of workmen or workers. The Chief Minister in his budget speech on 15th June, 1990, stated that the losing concern will be put into joint sector. On 27th August, 1990, the State Government issued an order whereby it appointed a Privatising committee (hereinafter referred to as PC) on 11th September, 1990 PC held its meeting and considered the offer of a number of cement manufacturers including the Dalmia Industries Limited. On 11th October, 1990, SB Billimoria and Company, Bombay, was appointed to value the shares of the Corporation. The said company, in December, 1990, submitted its report valuing the shares at Rs. 20/ - each against the face value of Rs. 100/ -. On 16th October, 1990, the Union of the workmen of the corporation preferred writ petition No. 26223 of 1990 in this Court challenging the Government's decision to privatise the corporation. This Court, as an interim measure, stayed the final implementation of the decision over the factories run by the corporation. On 19th November, 1990 a second meeting of the PC took place. In the meanwhile all the other cement manufacturers, who had responded to the invitation, backed out and only the Dalmia Industries remained in the field. The P.C. considered the offer of the Petitioner and finally accepted the same and the Cabinet accepted the recommendation of the P.C. on 14th February, 1991, a Memorandum of Understanding (hereinafter referred to as MOU) was entered into by the State Government with the Dalmia Industries. This memorandum, inter alia, provided that the Dalmia Industries and its associates will hold 51% of the shares of the Corporation, it will take over the management of the Corporation with all its assets and liabilities, it will have a right to nominate 5 Directors: whereas the State Government will have a right to nominate 4 Directors and the Dalmia Industries would be entitled to have one of its Directors as the Managing Director. The State Government passed an order incorporating the MOU. On February 21/22, 1991 shares transfer agreement and financial agreement were entered into providing the transfer of 49% of the shares to the Dalmia Industries pending the order passed in the aforesaid writ petition. On 7th March, 1991, a meeting of the Board of Directors of the Corporation was held. 5 Directors, who had been nominated by the State Government resigned and 5 Directors nominated by the Dalmia Industries were imported at their place. On 12th March 1991, Churk Cement Adhikari Kalyan Samiti filed writ petition no 1003 of 1991 in the Lucknow Bench of this Court praying therein for the quashing of the order of the State Government dated February 13/23, 1991 aforementioned. On 15th March, 1991, in that petition, an interim order was passed staying the implementation of the decision of the Board dated 7th March, 1991. On 10th April, 1991, the said interim was vacated. The writ petition was transferred from Lucknow to Allahabad and was renumbered here as writ petition No. 10607 of 1991. On 12th April, 1990, Sri Pravin Kumar, one of the 5 Directors nominated by Dalmia Industries, was appointed as the Managing Director of the Corporation. On 22nd July 1991 writ petition No. 26223 of 1990 and writ petition No. 1067 of 1991, came up for hearing before a Division Bench consisting of Hon'ble B.P. Jeevan Reddy, CJ (as he then was) and Hon'ble R.B. Mehrotra, J. The counter affidavits filed on behalf of the corporation as well as the Dalmia Industries were before the court. After considering the versions of the Petitioner, the corporation and the Dalmia Industries, the learned Judges recorded certain findings, which, in our opinion, are apposite. They are: Once a decision to privatise was taken, and before any offers were invited, one would have expected the Government to have ordered a thorough valuation of the assets and liabilities of the corporation to find out what it is worth. Any reasonable and prudent owner of property would do this before he puts his property for sale. He would first assess for himself the value of the property he is selling, since that alone would enable him to judge the offers received unless, of course, it is a distress sale. This ought to have been done by the State Government both as a prudent owner and also because it is in the nature of a trustee of the public property. It is, however, surprising to note that no such effort was made. The first move towards privatisation was made by the Government by its letter dated 16 -4 -1990 addressed to IDDI seeking its guidance about privatisation and requesting them to send a nominee to finalise the details of the proposal. No follow up action was taken. Then followed the advertisement in the newspaper "Economic Times" on 1 -5 -1990. 25 persons responded and there was a preliminary meeting on 15 -5 -1990. Even then, no attempt was made to value the net worth of the corporation. What is significant in this connection is that in the very first meeting of the P.C. on 11 -9 -1990 one of the members Sri A.K. Puri suggested that before taking any step in this behalf, it is essential to determine the present value of these units. He suggested that valuation of these units should be undertaken without any delay. He also suggested the names of five agencies, including A.F. Ferguson and Co. New Delhi and Price Waterhouse Associates, New Delhi, for this purpose. The committee agreed with this suggestion and constituted a sub committee comprising five members to select valuers, for the purpose and have these units valued. It appears rather inexplicable that no steps whatsoever were taken to have the assets of the corporation valued through any of those five agencies, nor through any other agency What happened is that during the course of negotiations with ACC, they suggested on 13 -9 -1990 that report of a chartered accountant be obtained to determine the present value of the shares of the corporation and also to have a physical verification of its assets The ACC also indicated their choice of the chartered accountant, namely. Billimoria and Co. Accordingly, the said firm of chartered accountant was asked to value the shares. They valued the shares at Rs. 20/ - per share. They did not undertake valuation of assets. A good amount of criticism has been levelled against the basis adopted by the said firm for valuing the shares and the manner in which they went about their job. It is really unnecessary to dilate upon the correctness of their report, ' -because no one appears to have attacked any value to it. The Dalmia Industries offered to purchase 51 per cent shares of the corporation at Rs. 45/ - per share, without asking for any kind of concession, facility or accommodation. This shows that the valuation made by the Billmoria & Co. was wide off the mark. In this context, it would be appropriate to refer to the pleadings of the parties. According to the Petitioners, the value of the assets of the corporation is more than rupees 700 crores. In the counter affidavit filed by the Government, this figure has been disputed as exaggerated and incorrect, but the Government has made no effort to give its own figure. Evidently, it could not, in the absence of any valuation by a competent agency. The fact remains that the corporation owns 136 sq.kms. of land, wherein are situated factories and other allied buildings, six residential colonies comprising five thousand dwelling units, six recognised educational institutions, besides limestone mines and a building called Cement Bhawan at Lucknow. There is a subsisting contract for supply of slag with Bokaro Steels, whereunder, according to the Petitioners, the corporation gets slag at 1/3rd of the market value. The above particulars relating to the assets of the corporation are not denied in the counter affidavit. It may be remembered that the paid up capital of the corporation is about Rupees 64 crores. As against this, the corporation has run up an accumulated loss of about rupees 180 crores. About Rupees 10 crores is due to the Financial Agencies and about 10 and odd crores to the State Government. In the above circumstances, it cannot be said that the liabilities of the Corporation are almost equal to its assets. It is well known that value of land and buildings has been appreciating over the last several decades. Even allowing for depreciation, their value should be substantial. Evidently, it was for this reason that the Dalmias offered to purchase the shares at Rs. 45/ - each, even without asking for any type of concession, facility or accommodations, and ultimately, they agreed to pay Rs. 75/ - per share, subject to the Government granting concessions, facilities and accommodations mentioned in the MOU and the GOs. We are told that a formal agreement has also been entered into between the Government and the Dalmia Industries, but a copy of the agreement has not been made available to us. (We presume that the agreement is in the same terms as the MOU and GOs aforementioned). Two questions have to be answered. What is it, the Dalmia Industries have got under the deal, and what is it, they have paid. We know what they have paid. According to the MOU, the total amount payable by them for 51 per cent of the shares at Rs. 75/ - -, per share is a little above 26 crores. Of this amount, they paid one crore at the time of signing the agreement. Two crores they agreed to pay within three months of the signing of the agreement. (We are told at the time of the hearing of the petitions that this amount has been paid) Another two crores they have agreed to pay within six months of the signing of the agreement. The balance amount of about rupees 21 crores is payable within 24 months of the date of the MOU. It, no doubt, carries interest at 12% per annum, but this amount when paid to Government, has to be re -invested by the Government as secured loan or against secured deventures, in the Corporation. These loans are to carry interest at 12% and are redeemable after five years in four equal instalments. Certain units controlled by the Dalmia Industries were to furnish a corporate guarantee for this balance amount. Under Clause 9 of the MOU, it was agreed that all the employees of the corporation will be taken over on as is where is basis, which means that they will be continued on the same basis. As against four directors on the Government, the Dalmias are to have five directors. Managing Director is to be appointed out of the five directors nominated by the Dalmias, The State Government clearly declared that they will not give any guarantee for funds to be raised in future by the corporation. As against this, the following concessions were extended by the State Government. For a period of five years, the Corporation was exempt from payment of Sales Tax. The amount collected by it on account of Sales Tax during this period has to be paid in five equal annual instalments. Payment of these instalments is to begin after the expiry of eight years. The debts due to the State Government and its agencies to the extent of rupees 25 crores were re -scheduled. There was to be a moratorium for a period of three years, whereafter the said debts were to be repaid in five equal instalments. Thee debts were to carry interest at 12% with rebate of 3% for timely and prompt payment. Besides, this contingent liabilities of Rs. 14 crores to the Sales Tax Department and 11 lakhs towards stamp duty were to be waived. Further Sales Tax Department was to be requested by the State Government to drop all the cases a very significant and pregnant concession. The last clause of the MOU provided that the memo of articles of association of the Corporation will be suitably amended to reflect the changed version of the Company and other changes envisaged in the Board etc. Mr. S.P. Gupta contends that 51 per cent of ownership of the Corporation was made over the Dalmia Industries on a mere payment of rupees one crore. In any event, the real cash payment, he says, is only rupees five crores. The rest is, no doubt, payable within two years, but when paid, it has to be re -invested by the State Government in the very same corporation, which again is repayable after a period of five years in four equal instalments, which means that the payment will really begin after seven years. His argument, therefore, is that assets worth rupees 700 crores were made over for a mere pretence . The State Government, no doubt, denies this imputation vehemently, but strangely, as it may seem, they have not given their valuation of the net worth of the corporation As we have pointed out hereinbefore, since they have made no attempt to have the net worth of the Corporation valued by any competent agency, they could not also have stated the same clearly. It is not as if they were not aware of this requirement. We may repeat that in the very first meeting of the P.C. one of its members opined that it was essential to value the assets of these units before any steps is taken towards their privatisation. He also suggested agencies competent to do the job. Other members of the Committee agreed with the suggestion and a sub -committee was also constituted to select the agency and have the valuation done, but no such valuation was done. Instead, Billimoria, and Co., was asked to do it and they made a mere superficial job. As we have said above, no one has taken the said valuation seriously. When A factory/industry/company is acquired by Government. They do not merely pay the prevailing value of the shares (in a case where shares of such company are quoted on Stock Exchange; such values are determined by a complex array of considerations. The normal method of determining the compensation in such cases is to value the assets, determine the liabilities and find out its net worth -unless, of course the compensation is fixed by the enactment itself. It cannot be denied that by selling 51% share holding in the corporation, the Government has in truth transferred 51 per cent of its ownership. Before determining the price, at which the share were to be sold, the Government ought to have, as a reasonable and prudent owner, and more so because it is in the nature of trustee vis -a -vis public property got a thorough valuation done of the assets and liabilities to find out the net worth of the Corporation. It would then have known what it was selling and would have been in a better position to determine which offer to accept and at what figure. Without such a valuation, the determination of rate of shares for the purpose of the sale was without any basis. We are left wondering whether any of the person responsible for the deal would have acted in the same fashion, if they had been selling 51 per cent share in a company owned by him.
(3.) SHRI D.K. Mittal. the Special Secretary, Government of Uttar Pradesh, Lucknow, has filed a counter affidavit on behalf of the State of Uttar Pradesh, the Respondent No. 1. In paragraph 20(b) to (f) of this affidavit, the averments, inter alia are these, after the transfer of 49 per cent shares of the Corporation, it was found that the Corporation suffered deterioration in the production of the cement and over all market position in respect of availability of cement became worse. The complete unit of the corporation at Dalla came to stand -still due to stiff opposition against the transfer of shares to the Dalmia Industries, and Ors. put up by the employees of the Corporation. The production of cement at Churk and Chunar was also adversely affected to an extent of about 90 per cent due to non functioning of the Dalla Unit and also due to non -cooperation of the workers. The workers of all the units abstained from work to a large extent. As a result of steep fall in production in the corporation, which is the only State undertaking engaged in the production of the cement in U.P. prices of cement went up considerably with the result that the construction work in the entire state suffered badly. Workers of the Corporation were opposed to the privatisation. On coming to know of the transfer of shares, they intensified their agitation virtually paralysing the unit. Workers of the other State Corporations including State Industrial units jointed them. Events took an ugly turn. On 22nd June, 1990, the police had to open fire resulting in the death of 9 persons and injuries to many. The work stopped at Dalla unit. The situation had the potential of major labour unrest Only a small percentage of workers were on duty and no one was working at the Dalla unit since June, 1991. Due to very low production, the workers engaged on daily wages and on casual basis under the management of the corporation were also deprived of employment. The deteriorating condition of the corporation affected the financial resources of the Government in so far as there was a reduction in the revenue receipts of the State Government through various taxes which the corporation was paying to the Government before the transfer of shares It was in the public interest to acquire the shares and, therefore, the State Government took a policy decision to do so.;