1994 (8) TMI 183 - HC - Companies Law

Court upholds Tamil Nadu Steels Ltd. privatisation as legal and in public interest.

The court dismissed both writ petitions challenging the privatisation of Tamil Nadu Steels Ltd., upholding the decision as a policy matter taken in public ... Protection of rights conferred under Constitution, Meetings - Extraordinary general meeting Issues Involved:1. Legality of the privatisation of Tamil Nadu Steels Ltd.2. Compliance with sections 169 and 293 of the Companies Act, 1956.3. Alleged violation of Article 39(b) and (c) of the Constitution.4. Judicial review of policy decisions.5. Impact on employees' rights and public interest.Detailed Analysis:1. Legality of the privatisation of Tamil Nadu Steels Ltd.:The petitioners challenged the privatisation of Tamil Nadu Steels Ltd., a wholly-owned subsidiary of Tamil Nadu Industrial Development Corporation Ltd., on the grounds that it was illegal, unconstitutional, and violative of the Companies Act, 1956. The petitioners argued that the company had been making profits for the last three years and that the decision to privatise was taken with mala fide intentions, without convening a general body meeting or a board meeting, thus violating sections 169 and 293 of the Act.2. Compliance with sections 169 and 293 of the Companies Act, 1956:The petitioners contended that the decision to privatise was taken without convening a general body meeting or a board meeting, contrary to sections 169 and 293 of the Companies Act. The respondents argued that the transfer of equity shares in a wholly-owned subsidiary by the holding company does not amount to the sale or disposal of an undertaking and thus does not attract section 293. Consequently, section 169 also has no application. The court agreed with the respondents, stating that the transfer of shares did not require compliance with sections 169 and 293.3. Alleged violation of Article 39(b) and (c) of the Constitution:The petitioners argued that the privatisation was against the constitutional goals embodied in Article 39(b) and (c) of the Constitution, which deal with the distribution of material resources and prevention of concentration of wealth. The court noted that while directive principles are not justiciable, they guide state policies. However, the court found that the privatisation decision, taken in public interest, did not violate these constitutional provisions. The court emphasized that it cannot sit in judgment over the wisdom of policy decisions unless they violate fundamental or statutory rights.4. Judicial review of policy decisions:The court referred to previous judgments, including the Supreme Court's observations in Premium Granites v. State of Tamil Nadu and Fertilizer Corpn. Kamagar Union v. Union of India, which held that courts should not interfere with policy decisions unless they are arbitrary, mala fide, or violate constitutional or statutory provisions. The court reiterated that it cannot question the wisdom of policy decisions taken in public interest and that the decision to privatise Tamil Nadu Steels Ltd. was a policy decision not amenable to judicial review.5. Impact on employees' rights and public interest:The petitioners expressed concerns about the impact of privatisation on employees, arguing that it would prejudice their interests and affect public sector undertakings dependent on the company's products. The respondents countered that the decision was taken in public interest to bring in a capable entrepreneur to run the company efficiently. They assured that employees' rights would be protected under existing labour laws and that the change of ownership did not imply job losses. The court concurred with the respondents, stating that employees' rights could be addressed through appropriate legal forums and that the privatisation aimed to reduce the burden on public resources and promote new industries.Conclusion:The court dismissed both writ petitions, upholding the decision to privatise Tamil Nadu Steels Ltd. It emphasized that the decision was a policy matter taken in public interest, not subject to judicial review, and did not violate constitutional or statutory provisions. The court also noted that employees' rights would be protected under existing laws and that the privatisation aimed to serve the larger public good.