Cut & Thrust: Keep vested interests out

Tags: Op-ed
Cut & Thrust: Keep vested interests out
People train to prevail — in the street, in the alley, in combat, on the field, in the ring and a zillion other places. Even in an office, you have to be mentally strong to stay ahead in a competitive set. The training may not necessarily be physical, but mental conditioning and toughness is equally strenuous. It is said that nobody gets dragged into a street fight, but once you are in the thick of it, survival takes over. Ditto in chess, to anticipate what your adversary is thinking and planning is vital to how you go about competing. Mental disintegration and psychological warfare are opposite poles in this spectrum of role playing. Lately, the government has shown gumption on reform. It did not delay GST despite calls coming for its postponement from myriad sources. It remained steadfast on tax slabs and while the sliding rule was applied subsequently, it was India’s federal structure which ultimately prevailed, as everyone was taken on board.

With D minus 24 months for general elections, Modi’s true test has begun on two significant reforms where he himself has taken a position. Both on Air India privatisation and resolution of banking NPAs, Modi has taken an aggressive stance, he wants closure. Vested interests and pressure groups have to be kept at bay in both instances for these decisions are vital to the better functioning of India’s perilous financial system. Employee unions and deep in the weeds promoters loath to losing their companies are the obvious suspects who want to derail such reform. However, the more people one speaks to on these issues, the more one hears that if this can be done, it can be achieved by Modi alone and no one else. For this, he needs to be cerebral with hardiness and grit as supplementary weapons to stamp out all opposition.

So, it becomes his cross to carry and in many ways his legacy too if he succeeds in his endeavors. So, how does he go about it? For starters, he needs to transpose the learnings from earlier battles. The process as we have already seen with resolution of banking NPAs will be litigious. Go back to the SC judgment on Balco and learn from it. It was a watershed decision for the Indian legal system. It is often said that judicial activism encroaches on the executive’s powers and impedes the functioning of the executive. In recent years there are many such instances where the executive has abdicated its authority, allowing judicial over reach to take epic decisions. But in December 2001, the SC in what was truly a landmark decision upheld the disinvestment of 51 per cent of the equity shares of the Balco in favour of Sterlite Industries for Rs 551.50 crore, stating that the correctness of the government’s “disinvestment policy” could not be gone into by court. It provided ballast and impetus to the Vajpayee administration’s sense of purpose in privatisation. A three-judge bench, comprising Justice BN Kirpal, Justice Shivaraj V Patil and Justice P Venkatarama Reddi, dismissing a batch of petitions observed that “courts are not intended to and nor should they conduct the administration of the country.”

Sounds completely at odds with what we have seen since from the judiciary which has proved to be the last man standing. It is said that courts would interfere only if there was a clear violation of Constitutional or statutory provisions or non-compliance by the state with its Constitutional or statutory duties and none of these contingencies had arisen in this case. Speaking for the Bench, Justice Kirpal said that “in the case of a policy decision on economic matters, the courts should be very circumspect in conducting any inquiry or investigation and must be most reluctant to impugn the judgment of the experts who may have arrived at a conclusion unless the court is satisfied that there is illegality in the decision itself.”

He made it clear that “wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution.” “It is not for the courts to consider the relative merits of different economic policies and consider whether a wiser or better one can be evolved and for testing the correctness of a policy, the appropriate forum is the Parliament,” the Bench observed and pointed out that “here the policy was tested and the motion was defeated in the Lok Sabha on March 1, 2001.” Fulminating against the Chattisgarh government for making such allegations, the bench said “It is a matter of regret that on behalf of the state such allegations against the Union of India have been made without any basis. We strongly deprecate such unfounded averments which have been made by an officer of the state.”

The bench emphasised that “valuation is a question of fact and the court will not interfere in matters of valuation unless the methodology adopted is arbitrary.” Every matter of public interest or curiosity could not be the subject matter of a PIL. “In a democracy it is the prerogative of each elected government to follow its own policy. Often a change in government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court,” it said. That put an end to litigation against disinvestment, although Fali Nariman tripped the process at the fag end of the NDA dispensation by challenging the privatisation of BPCL and HPCL saying that since they had been formed by legislative fiat, they should be disinvested also by revisiting parliament.

Similarly, when B Ramalinga Raju failed to get off the tiger that he was riding, it was to UPA’s credit that it displayed alacrity in dealing with the ulcer. Taking the unprecedented step of salvaging what appeared to be a lost cause and restoring credibility into a rapidly eroding IT services brand luminiscence, it showed great intent. A bailout was out of the question, butthe Ministry of Corporate Affairs nonetheless achieved effective damage control. A few days after Raju’s confession, the ministry dissolved the Satyam board, and installed a three-member board tasked with identifying a buyer for Satyam, featuring corporate luminaries, Deepak Parekh, Kiran Karnik and C Achutan, in its place: subsequently expanding this board, appointing three more directors, T Manoharan, Tarun Das and S Balakrishna. The interim board took some key steps, such as engaging new legal counsel, auditors, and a CEO. Satyam continued to fulfil its obligations under the aegis of an interim chairman, and following an open-bid auction in April 2009, Tech Mahindra emerged with the winning bid (58/share). Tech Mahindra and Satyam merged under the rebranded identity of Mahindra Satyam in June 2009. The government’s efforts to save Satyam were thus both significant (without precedent in India), and successful, saving India’s face.

Agreed Air India is a running concern, agreed that there is no scam or scandal attached to it, but what it has cost the national exchequer is incalculable. A manoeuvre like Satyam would stand the government in good stead to ensure that there is no interference from vested interests. Ergo, create an Air India Disinvestment Authority on the lines of the Satyam sale and keep predators out.

Otherwise, you will have a situation reminiscent of what Essar Steel did last week. The Gujarat High Court prevented the National Company Law Tribunal from conducting any further proceeding against Essar Steel till July 12 under the Insolvency and Bankruptcy Code. A bench of Justice S G Shah stopped the NCLT from proceeding further against the Essar Steel on the firm’s contention that the RBI’s direction to the banks to initiate action against it under the Insolvency and Bankruptcy Code was improper as its was in advanced stage of restructuring.

In January, Innoventive Industries, a speciality steelmaker was forced into the bankruptcy court by its lenders, testing for the first time new insolvency rules that aim to resolve India’s

Rs 750,000 crore bad debt overhang. The company, which makes steel tubes and auto parts for customers, including Ford, Volkswagen and Tata Motors, posted its third straight annual loss in 2016, prompting ICICI, one of its lead lenders, to trigger bankruptcy proceedings early this year. Reuters reported on Tuesday that nearly six months on the proceedings against Innoventive, seen as a test case for the first national bankruptcy law, are raising questions about the efficiency of the new regime that regulators are now compelling lenders to use to recover debts.

The new Insolvency and Bankruptcy Code aims to move cases of company failure into a single forum, replacing an archaic system of overlapping regulations under which banks, company promoters and other creditors could all initiate competing proceedings in different courts, tribunals and regions. Staying the course is vital at this juncture, for in this eyeballing joust, the man who blinks first loses it all.


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