TaxTMI 
TaxTMI 
2002 (1) TMI 1227
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....permitted to carry out due diligence of VSNL the respondent No. 2, so as not to delay the processing of the financial bid, if the Court comes to the conclusion that the petitioner should be permitted to participate. It was observed that the Court would consider further directions being given regarding processing of the bid, depending upon the conclusion it reached with regard to the merits of the petitioner's case. 3. Counter affidavits by respondent Union of India and VSNL have been filed, the petitioner has also filed rejoinders thereto. The learned Senior counsel Dr. Abhishek Manu Singhvi and Mr. Rajiv Nayyar were heard in support of the petition. Mr. Soli J. Sorabjee, Attorney General for Union of India and Mr. R.N. Trivedi, Additional Solicitor General for the respondent No. 2 VSNL were heard in opposition to the writ petition on 28-1-2002. 4. Before coming to the respective submissions of the parties, the relevant and admitted facts on which there is no controversy may be noted:- (i)Respondent Union of India vide a public notice/advertisement dated 20-2-2001, published in newspapers, as well as on the internet, issued 'Expression of Interest' under the hand of the Di....
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....logically could be the basis for bid to acquire 25 per cent equity share capital of VSNL. Based on these figures, the petitioner contends that it was not in a position to give a proper bid and, hence, did not submit the bid in terms of the 'Expression of Interest'. 7. The learned senior counsel Dr. A.M. Singhvi submits that as a result of conscious decisions and actions of the respondents, there has been a sea change in the financial position and parameters of VSNL as projected at the time of inviting 'Expression of Interest' and as now prevailing at the time of financial bid to be given by the shortlisted bidders. By payment of dividends itself, the cash and surplus reserves of VSNL had been depleted. VSNL paid 100 per cent normal dividend and an unprecedented special dividend of 400 per cent totalling 500 per cent to its existing shareholders as of 15-9-2001, pursuant to the approval by the shareholders at the annual general meeting of VSNL held on 27-9-2001. The petitioner, therefore, wrote a letter on 8-10-2001, to the Joint Secretary, Department of Disinvestment, expressing its interest to evaluate the opportunity of acquiring shares in VSNL, Hotel Corporation of India, ....
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....e the acquisition of VSNL more capital efficient and affordable. Dr. Singhvi submitted that considering the petitioner's track record and its relationship with major international players in telecommunication and I.T. arena, petitioner should be permitted to carry out due diligence and give a bidding offer for acquisition of VSNL shares. 10. The learned counsel submitted that the petitioner was not assailing the disinvestment process or challenging the eligibility criteria, rather its endeavour and effort was to introduce more competitiveness. It would also be in the interest of the Government to get the maximum valuation for VSNL disinvestment, especially in view of the change in the business environment, including the end of ILD monopoly of the respondent/VSNL by March, 2002. The petitioner, therefore, ought to be permitted to bid for the disinvestment process, which would be in the larger public interest. Dr. Singhvi, by way of illustration, stated that the present case was akin to the advertised sale of a fully loaded car with accessories, such as Refrigerator, Video, T.V., Air Conditioner, etc. However, before the sale, the owner strips it of all the accessories leaving it ....
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....pate in the bid to make the same more competitive. He submitted that it was not a case where the market capitalization of VSNL has come down as a result of capital recession or the market crashing. It has happened as a result of deliberate conscious act of payment of unprecedented dividends, thereby reducing market capitalization and net worth of VSNL. He submitted that acquisition of VSNL has become more capital efficient and affordable. He re-emphasized that petitioner was not assailing the eligibility conditions or for that matter the reduction in the earnest money deposit, rather its prayer was only to be permitted to participate in the bid to make it more competitive and ensure the best realization of value for the assets and share of VSNL. 13. The learned counsel also submitted that the petitioner was eligible to bid and met the eligibility criteria. In this connection, he submitted that the net worth of the promoters of the petitioner-company was Rs. 2,836.31 crores, i.e., more than Rs. 2,500 crores. He placed reliance on a certificate appearing at page 269 of the paper book, wherein the details of the various shareholders of the petitioner's company, namely, Modi Holding....
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....on finding the project large and beyond its capacity. The petitioner took a business decision, if the same did not turn out right, it could not blame others. It is claimed that the petitioner is overstating the impact of the events. The petitioner was only a company with a net worth of less than Rs. 300 crores, it could not be a possible contender or strategic partner in a business whose net worth, if the petitioner's arguments were to be accepted, still was 10 times, i.e., of 3,000 crores. It is claimed that the petitioner having a net worth of less than Rs. 300 crores was not eligible to participate in the bidding process. The petitioner had failed to give any details of the members of the so-called consortium or promoters. As regards the reduction in EMD (Earnest Money Deposit), it was post 'Expression of Interest' development and fixed after discussion on finalization of the share purchase agreements and other documentation with shortlisted bidders. Subsequent changes during negotiations in the process of disinvestment are irrelevant as far as petitioner is concerned as he had not even participated in the 'Expression of Interest'. It is claimed that VSNL being one of public ....
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....d logically provide an opportunity afresh to the petitioner to bid, was misconceived as the eligibility criteria of 2,500 crores is not linked to the net worth of VSNL. The disinvestment process formally started in February, 2001. If petitioner's argument was to be accepted, then not only petitioner, but others should also be given an opportunity to participate, which would result in de novo commencement of disinvestment process. The petitioner cannot have any grievance with regard to reduction in earnest money deposit, as the same was not pre-condition for submission of 'Expression of Interest', which the petitioner failed to do. The removal of monopoly of VSNL in international telephony by 31-3-2002, was also known and there has been no change in that. The decision to demerge assets into a new company with similar shareholding pattern as that of VSNL cannot again be questioned as it was in public interest. The affidavit then goes on to describe the process of disinvestment, rationale thereof as well as gives the overview of the process of disinvestment. It is not necessary for the purpose of disposal of this writ petition either to reproduce or recapitulate the same here. 17. ....
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....acquiring Shares in the following Companies: Videsh Sanchar Nigam Limited, Hotel Corporation of India, Indian Tourism Development Corporation (ITDC), Indo Burma Petroleum (IBP), Indian Petrochemicals (IPCL), Mahanagar Telephone Nigam Limited. We would request you to shortlist us and advise us on the next step including obtaining the information memorandum for these to enable us to participate effectively and in time. We are also extremely interested in the opportunity of acquiring the majority shareholding in CMC Limited. We do appreciate that we are making known our interest in CMC to you at this late juncture. However, given the fact that there is only one bidder currently in the process, we believe our offer would enable the Government of India to get the best valuation. We would, therefore, like to request you to kindly help and make available to us the relevant information memorandum and provide us with a limited due diligence option of 10 working days to make a binding offer for acquisition of CMC shares. We would also request you to provide us with the draft Share purchase and Shareholder Agreement, if any, for the same purpose." 20. From the letter as reprodu....
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.... of VSNL. He submitted that any delay in the disinvestment process would severally prejudice the VSNL that was currently positioned at a very critical juncture wherein the private bidders would also be joining the field after the end of the monopoly of the VSNL in International Link Dialing and Telephony. Any uncertainty about future delay would be detrimental to VSNL interest. I find merit in the above submission. 22. Let me now consider whether the petitioner was duly qualified and eligible to bid. The question here is whether the petitioner meets the eligibility criteria or not? The eligibility criteria required the bidder to have a net worth of Rs. 2,500 crores. The net worth of the petitioner-company, admittedly, is in the range of Rs. 272 crores or so, as per the petitioner itself. The preliminary information memorandum gives the eligibility criteria as under: "Companies/Joint Ventures/or Consortia (incorporated or to be incorporated) interested in participating in the proposed disinvestment ('Interested Parties') should have a combined net worth of a minimum of Rs. 2,500 crores. The net worth of only those promoters shall be counted who have at least 10 per cent equity....
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..... In these circumstances, I am of the view that even at this belated stage, the interest expressed or the so-called attempt to bid is by petitioner alone and not by any joint venture or consortium or promoters as claimed by the petitioner. The petitioner itself admittedly has a net worth of only Rs. 272 crores as against the eligibility requirement of Rs. 2,500 crores. Hence, it is held that petitioner was not eligible to bid. 25. Let us now consider the next submission of the learned senior counsel for the petitioner Dr. Singhvi that as a result of unprecedented declara- tion of the dividends, the net worth of VSNL was diminished and eroded. The detailed submissions in this regard have already been noticed. The submission is that with a declaration of 500 per cent dividend in Septem-ber, 2001 and 750 per cent as well as by demerging of the surplus land assets, the market capitalization and net worth of VSNL, had been eroded from Rs. 10,000 to Rs. 3,000 crores. In view of this changed financial scenario, the petitioner should be permitted to bid. Firstly, as held earlier, there has been no change in the eligibility criteria and the petitioner does not qualify for the same and, h....
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.... earlier, have set out details in the affidavit. The privatization process commenced with the Cabinet Committee on Disinvestment approving in principle the PSU's of which disinvestment is to be done, by global competitive bidding process. Advisors are selected and 'Expression of Interest' from prospective strategic partners is invited. After the receipt of the 'Expression of Interest' prospective bidders are shortlisted. The due diligence of the PSU is gone through and the information memorandum is drafted and given to the prospective bidders after entering into a confidentiality agreement. The draft share purchase agreement and shareholder agreements are prepared by the advisors. The evaluation of the PSU is done and it is at this stage, the technical and financial bids are invited from the shortlisted bidders. After this entire process has been gone through and stage of financial bid had arrived, it would be idle for the petitioner to contend that during this entire period, no decisions should be taken with regard to the conduct of business of the PSU which is the subject-matter of disinvestment. It is not in issue that the dividends have been duly approved by the annual general ....