B.B.A., LL.B. (Hons.

)
FOURTH SEMESTER
(2018-2023)

CONSTITUTION I
Topic: Case analysis of BALCO V. UOI

Submitted to:
Prof. Srikant Aithal
School of law, NMIMS (Deemed to be university)

Submitted By:
Shivangi Mugdha
Second Year B.B.A LL.B. (HONS.)
Roll No. – B029
INTRODUCTION TO THE CONSTITUTION
The Constitution of India which was brought into force on 26 January 1950 proclaiming the
birth of a new republic to the whole world. It is the Supreme Lex, it reflects upon the struggle
and aspirations of the people of a country which was subjected to the oppressive rule of a
colonial power for more than two centuries. The Constitution of India is also known as the
father of all laws i.e., groundwork as all the other existing laws get the effect and drive their
force from the constitution itself.
The Indian constitution is the longest constitution existing. It originally consisted of 395
articles, as of now it consists of 444 articles divided into 25 parts and 12 schedules.
Its objectives include establishing India as an independent sovereign republic, to secure justice,
equality, freedom etc for the citizens, and adequate safeguards for the minorities. It also gives
powers to the government at the state and central level. It also contributes to the promotion of
world peace and the welfare of mankind.

BACKGROUND
The case ascended to contest the rationality of the decision of the Union of India to disinvest
and transfer 51% shares of M/s Bharat Aluminium Company Limited (hereinafter referred to
as 'BALCO’). Filling of the case happened by way of a writ petition by the BALCO Employees’
Union they filled Writ Petition No. 2249 of 1999 in the High Court of Delhi when upon the
recommendation of the Disinvestment Commission, the Cabinet Committee on Disinvestment
approved the sale of 51% of the shares of BALCO to private ownership and thus reducing the
status of the company from a Government Company to a private enterprise. Further, upon the
same issue, a Public Interest Litigation (PIL) was filed by one Dr. B.L. Wadhera in the Delhi
High Court and similarly writ petition filed by Mr. Samund Singh Kanwar in the High Court
of Chhattisgarh wherein different steps of the disinvestment procedure were challenged. With
the filing of the writ petitions in the High Court of Delhi and in the High Court of Chhattisgarh,
an application for transfer of the petitions was filed by the Union of India in the Supreme Court
and by Order dated 9thApril, 2001, the writ petitions which were pending in the High Court of
Delhi and Chhattisgarh were transferred to the Supreme Court.
LAWS AND STATUTES
1. Article 12 of the Constitution of India which defines state as: -
Definition In this part, unless the context otherwise requires, the State includes the
Government and Parliament of India and the Government and the Legislature of
each of the States and all local or other authorities within the territory of India or
under the control of the Government of India

2. Article 14 of the Constitution of India which states that: -

Equality before law The State shall not deny to any person equality before the law or
the equal protection of the laws within the territory of India Prohibition of
discrimination on grounds of religion, race, caste, sex or place of birth.

3. Article 16 of the Constitution of India: -

Equality of opportunity in matters of public employment
(i) There shall be equality of opportunity for all citizens in matters relating to
employment or appointment to any office under the State
(ii) No citizen shall, on grounds only of religion, race, caste, sex, descent, place of
birth, residence or any of them, be ineligible for, or discriminated against in
respect or, any employment or office under the State
(iii) Nothing in this article shall prevent Parliament from making any law
prescribing, in regard to a class or classes of employment or appointment to an
office under the Government of, or any local or other authority within, a State
or Union territory, any requirement as to residence within that State or Union
territory prior to such employment or appointment
(iv) Nothing in this article shall prevent the State from making any provision for the
reservation of appointments or posts in favor of any backward class of citizens
which, in the opinion of the State, is not adequately represented in the services
under the State
(v) Nothing in this article shall affect the operation of any law which provides that
the incumbent of an office in connection with the affairs of any religious or
denominational institution or any member of the governing body thereof shall
be a person professing a particular religion or belonging to a particular
denomination.
PRECEDENT APPLIED
The court in total relied on 6 judgements some of them had major effect on the case while some
of them had small parts. The judgements were used to establish things like the power of court
to interfere in administrative matters, policies of disinvestment, rights of the people and the
authority of people to fill PILs.
• The court relied upon R.K. Garg vs. Union of India and Others1, where there was an
unsuccessful challenge to a law enacted by Parliament and held the following: -
What has been said in respect of legislations is applicable even in respect of policies
which have been adopted by Parliament. They cannot be tested in Court of Law. The
courts cannot express their opinion as to whether at a particular juncture or under a
particular situation prevailing in the country any such national policy should have been
adopted or not. There may be views and views, opinions and opinions which may be
shared and believed by citizens of the country including the representatives of the
people in Parliament. But that has to be sorted out in Parliament which has to approve
such policies. Privatisation is a fundamental concept underlying the questions about the
power to make economic decisions. Such as the role of the State in the economic
development of the nation, ways in which the resources of the country shall be used,
attainment of the goals fixed, are there safeguards to prevent the abuse of the economic
power, the mechanism of accountability to ensure that the decision regarding
privatisation is in public interest. All these questions have to be answered by a vigilant
Parliament. Courts have their limitations because these issues rest with the policy-
makers for the nation. No direction can be given or is expected from the courts unless
while implementing such policies, there is violation or infringement of any of the
constitutional or statutory provision. This Court cannot review and examine as to
whether the said policy should have been adopted. Of course, whether there is any legal
or constitutional bar in adopting such policy can certainly be examined by the Court".
• The Supreme Court, in the celebrated case of Ram Jawaya Kapoor v. State of Punjab,
observed thus, “the executive function comprises both the determination of policy as
well as carrying into execution. The evidently includes the initiation of legislation, the
maintenance of order, the promotion of social and economic welfare, the direction of
foreign policy, in fact the carrying on or supervision of the general administration of

1
(1981) 4 SCC 675
 the State”. Thus, we and that the determination of policy has always been within the
domain of the Executive.
• The reluctance of the Court to judicially examine the matters of economic policy was
again emphasised in Bhavesh D. Parish and Others vs. Union of India and
Another2, and while examining the validity of Section 45-S of the Reserve Bank of
India Act 1934, it was held as follows: -

"The services rendered by certain informal sectors of the Indian economy could not be
belittled. However, in the path of economic progress, if the informal system was sought
to be replaced by a more organised system, capable of better regulation and discipline,
then this was an economic philosophy reflected by the legislation in question. Such a
philosophy might have its merits and demerits. But these were matters of economic
policy. They are best left to the wisdom of the legislature and in policy matters the
accepted principle is that the courts should not interfere. Moreover, in the context of
the changed economic scenario the expertise of people dealing with the subject should
not be lightly interfered with. The consequences of such interdiction can have large-
scale ramifications and can put the clock back for a number of years. The process of
rationalisation of the infirmities in the economy can be put in serious jeopardy and,
therefore, it is necessary that while dealing with economic legislations, this Court, while
not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation,
should interfere only in those few cases where the view reflected in the legislation is
not possible to be taken at all".

• The court relied upon the case of State of Haryana vs. Shri Des Raj Sangar and
Another3, and gave the same parity of reasoning, the policy of disinvestment cannot be
faulted if as a result thereof the employees lose their rights or protection under Articles
14 and 16 of the Constitution. In other words, the existence of rights of protection under
Articles 14 and 16 of the Constitution cannot possibly have the effect of vetoing the
Government's right to disinvest. Nor can the employees claim a right of continuous
consultation at different stages of the disinvestment process. If the disinvestment
process is gone through without contravening any law, then the normal consequences
as a result of disinvestment must follow.

2
(2000) 5 SCC 471
3
(1976) 2 SSC 844
 • In this connection, the court also acknowledged the observations of the Karnataka High
Court in Prof. Babu Mathew and Others vs. Union of India and Others4, where the
Court while dealing with disinvestment up to 49% of the government's holding in a
public sector company observed as follows: "Any economic reform, including
disinvestment in PSEs is intended to shake the system for public good. The intention of
disinvestment is to make PSEs more efficient and competitive and perform better. The
concept of the public sector and what should be the role of the public sector in the
development of the country, are matters of policy closely linked to economic reforms.
While it is true that any policy of the Government should be in public interest, it is not
shown how prior consultation with employees of a PSE before disinvestment is a facet
of such public interest."
• The Supreme Court followed the case of Southern Structurals Staff Union v.
Management of Southern Structurals5 where it was held that the consent of the
employees is not required for disinvest of a government company as it does not affect
their right.
• It was also taken from Narmada Bachao Andolan vs. Union of India and Others6
that while protecting the rights of the people from being violated in any manner utmost
care has to be taken that the court does not transgress its jurisdiction. There is, in our
constitutional framework a fairly clear demarcation of powers. The court has come
down heavily whenever the executive has sought to impinge upon the court's
jurisdiction.

At the same time, in exercise of its enormous power the court should not be called upon
to or undertake governmental duties or functions. The courts cannot run the
Government nor can the administration indulge in abuse or non-use of power and get
away with it. The essence of judicial review is a constitutional fundamental. The role
of the higher judiciary under the Constitution casts on it a great obligation as the sentinel
to defend the values of the Constitution and the rights of Indians. The courts must,
therefore, act within their judicially permissible limitations to uphold the rule of law
and harness their power in public interest. It is precisely for this reason that it has been
consistently held by this Court that in matters of policy the court will not interfere.

4
[1997] 90 Company Cases 455
5
1994 81 CompCas 389 Mad, (1994) IILLJ 1243 Mad
6
(2000) 10 SSC 664
 When there is a valid law requiring the Government to act in a particular manner the
court ought not to, without striking down the law, give any direction which is not in
accordance with law. In other words, the court itself is not above the law.

SCRUTINY OF THE CASE BY THE APPEAL COURT:

This decision of the Government to the aforesaid strategic sale was challenged by the BALCO
Employees' Union by filing Writ Petition No. 2249 of 1999 in the High Court of Delhi. This
petition was disposed of by the High Court vide its order dated 3rd August, 1999. On 3rd
March, 2000, the Union Cabinet approved the Ministry of Mines' proposal to reduce the share
capital of BALCO from Rs. 488.8 crores to Rs. 244.4 crores.
A formal Agreement between Jardine Fleming, the Global Advisor and the Government of
India was executed on 14th June, 2000. The scope of work of the Global Advisor was also
agreed thereon. Thereafter, on 16thJune, 2000 the Global Advisor, on behalf of the Government
of India, issued an advertisement calling for "Expression of Interest" in leading journals and
newspapers all over the world. The advertisement was responded by eight companies which
submitted their expression of Interest. An extensive analysis was made so as to decide which
company should be given the bidding. It was narrowed down to three companies namely
ALCO, USA, Hindalco Industries Ltd. and Sterlite Industries (India) Ltd. The core group made
its recommendation to the Cabinet Committee on Disinvestment which on 21st February, 2001
approved/accepted the bid of Sterlite Industries at Rs. 551.5 crores. The Government's decision
was communicated to Sterlite Industries on that date
The announcement of the decision to accept the bid of Sterlite Industries led to the initiation of
legal proceedings challenging the said decision. On 23rd February, 2001, Dr. B.L. Wadhera
filed Civil Writ Petition No. 1262 of 2001 in the Delhi High Court. This was followed by Writ
Petition No. 1280 of 2001 filed by the employees of BALCO on 24th February, 2001 also in
the High Court of Delhi. On that very date, i.e., on 24th February, 2001 another employee of
BALCO, namely, Mr. Samund Singh Kanwar filed Civil Writ Petition No. 241 of 2001 in the
High Court of Chhattisgarh.
While the aforesaid writ petitioners were pending there was a Calling Attention Motion on
Disinvestment with regard to BALCO in the Rajya Sabha. Discussions on the said motion took
place in the Rajya Sabha on 27th February, 2001 and the matter was discussed in the Lok Sabha
on 1st March, 2001. The motion "that this House disapproves the proposed disinvestment of
Bharat Aluminium Company Ltd." was defeated in the Lok Sabha by 239 votes to 119 votes.
Soon thereafter on 2nd March, 2001, Shareholders Agreement and Share Purchase Agreement
between the Government of India and Sterlite Industries Limited were signed. Pursuant to the
execution of sale, 51% of the equity was transferred to Sterlite Industries Limited and a cheque
for Rs. 551.5 crores were received.
It was upon these events that the Petitions filed before the Delhi and Chhattisgarh High Courts
and were finally transferred to the Supreme Court after the application of the Union of India
before the Court for the transfer of the transfer of the same.

CONTENTION OF THE PARTIES

(A) On behalf of the BALCO Employees' Union.

(1) Before disinvestment, the entire paid-up capital of BALCO was owned and controlled
by the Government of India and its administrative control co-vested in the Ministry of
Mines. BALCO was, therefore, a State within the meaning of Article 12 of the
Constitution7. Therefore, by the reason of disinvestment the workmen had lost their
right and protection under Articles 14 and 16 of the Constitution. This was an adverse
civil consequence and, therefore, they had a right to be heard before and during the
process of disinvestment.
(2) The type of consultation with the workmen which was necessary was
i. Whether BALCO should go through the process of disinvestment;
ii. Who should be the strategic partner; and
iii. How should the bid of the strategic partner be evaluated.
(3) It was further submitted that the workmen had reason to believe that apart from the sale
of 51% of the shares in favour of Sterlite Industries the Agreement Postulated that
balance 49% will also be sold to them with the result that when normally in such cases
5% of the shares are disinvested in favour of the employees the same would not happen
in the present case.
(4) The contention of the Advocate General for the state of Chhattisgarh that the whole
process and decision of the disinvestment of BALCO lacked transparency was
dismissed by the Court by analysing the entire procedure adopted and the various steps
at which notification and public announcements were made.

7
Relied for the contention on Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors. (1981) 1 SCC 722;
Central Inland Water Transport Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr. (1986) 3 SCC
156
 (5) It was also contended that the implementation of the policy of disinvestment in the
present case had failed to evolve a comprehensive package of socio economic and
political reform and to structure the decision making process so as to achieve in a just,
fair and reasonable manner, the ultimate goal of the policy and that the interest of the
workers in the industrial sector, which could not have been undermined and, therefore,
any decision which was likely to affect the interest of the workers and employees as
class as whole cannot and ought not to be taken to the exclusion of such class, lest it
may be counterproductive.
(6) It was also contented by the employees that the State of Chhattisgarh was not properly
consulted and the decision to disinvest was taken without the knowledge of the State
Government, was also refuted by the Supreme Court by referring to the various
documents presented by the Counsels for the Union and also the various steps wherein
the involvement of the State Government was explicit.
(7) It was contended that the Disinvestment Commission had recommended that some
percentage of equity share may be offered to the workers to solicit their participation in
the enterprise and which would go a long way in proving the disinvestment plan
meaningful and successful. In this regard, it was not shown from any material or record
that the Government of India had at any stage addressed itself to this vital aspect of the
disinvestment process or had taken into consideration the likely repercussions on the
interest, right and status of the employees and workers. This non-consideration
indicates that there has been an arbitrariness in not taking into consideration relevant
facts in the decision-making process.
(8) There was another contention of the State of Chhattisgarh that the land on which
BALCO was setup was a tribal land thus the said land could have been acquired and
used by public sector undertaking but the tribal land could not be transferred to a non-
tribal. Therefore, it was contended that once the majority shares in BALCO were
transferred to a non-tribal company, the prohibition contained against the transfer of
tribal land came into operation8.

8
Relied upon Samatha v. State of A.P. and others, (1997) 8 SCC 191
(B) On behalf of Union of India
(1) since 1990-91 successive Governments have gone in for disinvestment. Disinvestment
had become imperative both in the case of Centre and the States primarily for three
reasons. Firstly, despite every effort the rate of returns of governmental enterprises had
been woefully low, excluding the sectors in which government have a monopoly and
for which they can, therefore, charge any price. The rate of return on central enterprises
came to minus 4% while the cost at which the government borrows money is at the rate
of 10 to 11%. In the States out of 946 State level enterprises, about 241 were not
working at all; about 551 were making losses and 100 were reported not to be
submitting their accounts at all.
(2) Secondly, neither the Centre nor the States have resources to sustain enterprises that are
not able to stand on their own in the new environment of intense competition.
(3) Thirdly, despite repeated efforts it was not possible to change the work culture of
governmental enterprises. As a result, even the strongest among them have been sinking
into increasing difficulties as the environment is more and more competitive and
technological change has become faster.
(4) It was also submitted in the contention that the wisdom and advisability of economic
policies of Government are not amenable to judicial review. It is not for Courts to
consider the relative merits of different economic policies. It is neither within the
domain of the Courts nor the scope of the judicial review to embark upon an enquiry as
to whether a particular public policy is wise or whether better public policy can be
evolved. Further the Process of disinvestment is a policy decision involving complex
economic factors.

Thus, it was stated by the Attorney General on behalf of the Union of India that the Court
should not interfere in the entire process as it was purely an administrative decision, to which
the power of judicial review did not extend.

CONTRIBUTION:
The case dealt with a challenge to the administrative power of the Government on the matter
of disinvestment of its stake in a government company as regards the procedure followed while
so deciding and also the provisions that needs to be examined while deciding the issue. An
administrative policy was under a challenge before the Court. The precise impact that this
decision, therefore, had was on the level of administrative discretion that the executive enjoyed
in the selection of and following of a policy which had a vital impact on the economic position
of the country. Nevertheless, the answer of the Supreme Court has been affirmative and it was
categorical in mentioning that unless the policy adopted by the government suffered from the
vires of illegality or malafide.

RATIO DICENDI OF THE JUDGMENT

i.) It can be concluded that the “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. 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.”
ii.) The policy of disinvestment cannot be questioned as such; the facts herein show that
fair, just and equitable procedure has been followed in carrying out this disinvestment.
The allegations of lack of transparency or that the decision was taken in a hurry or
there has been an arbitrary exercise of power is without any basis. Thus, the policy of
disinvestment followed by the Government of India was upheld by the Supreme Court
stating that the decision to disinvestment and the implementation thereof is purely an
administrative decision relating to the economic policy of the State; that, it is the
prerogative of each elected Government to follow its own policy.

MY ANALYSIS OF THE JUDGEMENT

The Hon’ble Supreme Court, while validating BALCO-disinvestment and dismissing the
petitions, remarked, “Thus, apart from the fact that the policy of disinvestment cannot be
questioned as such, the facts herein show that fair, just and equitable procedure has been
followed in carrying out this disinvestment.” This judgement facilitated the path of other. By
selling the controlling stake to a strategic partner what the company gets is a professional
management with proven skills and expertise in the field of metal. As far as fear regarding the
worker’s interest getting affected - the government still has control over 49 percent of the equity
holdings in the company which it could use effectively to safeguard workers’ interest. So, one
cannot say it is over for the government. It will also have right over the future cash flows in the
form of dividends and could play a significant role in decision making.
On a broader level, an administrative policy was under a challenge before the Court. The
precise impact that this decision, therefore, had was on the level of administrative discretion
that the executive enjoyed in the selection of and following of a policy which had a vital impact
on the economic position of the country. Nevertheless, the answer of the Supreme Court has
been affirmative and it was categorical in mentioning that unless the policy adopted by the
government suffered from the vires of illegality or malafide. Not stopping at this, the Court
also gave a substantive reflection on the aspect of natural rights and their applicability as
regards the choice of administrative policy.
Another important factor which can be observed from a careful reading of the decision is that
though the challenge was primarily to challenge the policy of disinvestment as being adopted
and followed by the Union of India, the matter, as decided by the Supreme Court, revolved
primarily around the rights of the employees and their consequent protection after BALCO had
actually been disinvested. The Court declined to review the policy decision of the Union
Government on the adoption of a policy of disinvestment though in fact it was tried to be
justified on behalf of the Union as reflected from the submissions of the Attorney General.
Thus, it can be said that the Court actually did not, at any stage, examine the correctness of the
disinvestment policy for India. The Court tried to evade deciding upon this issue and thus
giving it a name of administrative policy, it was approved.
It is important to note that in the specific case of the alleged malfeasance in the case of BALCO,
the Court categorically stated that “the facts herein show that fair, just and equitable procedure
has been followed in carrying out this disinvestment. The allegations of lack of transparency
or that the decision was taken in a hurry, or that there has been an arbitrary exercise of power
are without any basis. It is a matter of regret that on behalf of the State of Chhattisgarh 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
said State.” Thus, the judgment was not simply a strong rebuke to the credibility of the Chief
Minister Mr. Ajit Jogi, it also served to forestall further challenges by state governments on the
federal government’s prerogatives on privatization. Also, the Court circumscribed the extent
to which matters of economic policy and disinvestment in particular, and consequently matters
of policy, shall be scrutinized by courts.

The Court was categorical in stating that ‘‘it is neither within the domain of the Courts nor the
scope of judicial review to embark upon an enquiry as to whether a particular policy is wise or
whether a better public policy can be evolved. Nor are our Courts inclined to strike down a
particular policy at the behest of a petitioner merely because it has been urged that a different
policy would have been fairer or wiser or more scientific or more logical. Parliament is the
proper forum for questioning such policy. Thus, the Court held that such disputes were beyond
the realm of judicial determination and were left to the legislature to have circumspection over
such executive policies. Also, aware of the economic costs of the plant closure as a result of
the judicial intervention, the Court for the first time declared that, ‘‘No ex parte relief by way
of injunction or stay especially with respect to public projects and schemes or economic
policies or schemes should be granted.

It is only when the Court is satisfied for good and valid reasons that there will be irreparable
and irretrievable damage can an injunction be issued after hearing all the parties.’’ As a sort of
warning, the Court sought to deprecate the excessive use of PILs as a medium to thrash
government policies which were prima facie genuine and correct. It thus added, “the Petitioner
should be put on appropriate terms such as providing an indemnity or an adequate undertaking
to make good the loss or damage in the event the PIL is dismissed.’ It categorically held that
‘‘every matter of public interest or curiosity cannot be the subject matter of PIL. Courts are not
intended to and nor should they conduct the administration of the country.

Courts will interfere only if there is a clear violation of Constitutional or statutory provisions
or noncompliance by the State with its Constitutional or statutory duties.’ In regard to
disinvestment specifically, it held, ‘‘The decision to disinvest and the implementation thereof
is purely an administrative decision relating to the economic policy of the State and challenge
to the same at the instance of a busybody cannot fall within the parameters of Public Interest
Litigation.’’ The Court also specified the contours of the rights of labour when policy changes
were affected, for instance when the Government disinvests its equity in an enterprise.
CONCLUSION

I seriously like to criticize this judgment because in my view it is the duty of the judiciary,
which is at the threshold, to dispense justice and fairness. But by holding that judiciary can’t
interfere into policy matters and further employees do not have the right to challenge the
administrative and policy decision of disinvestment of the company taken by the central
government, it gave unlimited and unchecked powers in the hands of the executive. So, it can
now take decisions at its whims and fancies and behave like an unruly horse. Further it has
taken away the power of hearing and right of the employees to approach the courts for justice
if their rights are affected. This judgement has given power and authority in the hands of private
companies and left the employees to their fate. Further there is no check on ongoing parallel
politics and violations of law and contracts taking place after such disinvestment.
Disinvestment in my view is a good and effective policy to revive the corporate sector owned
by the government. But it needs to be free from politics and other curses and flaws it suffers
from. Everything done should be for the welfare of the nation and its people as a whole.

In the interest of the implies and the industry it was a bad law.

BIBLIOGRAPHY

1. Jain & Jain, Principles of Administrative Law, (Wadhwa & Co., Nagpur, 4th edition, 2003)
2. Balco Employee’s Union. (2016, Nov 23). Retrieved March 22, 2020, from
https://newyorkessays.com/essay-balco-employees-union/

3. Shankar Acharya, India’s Macroeconomic Management In The Nineties, (As Prepared For
Indian Council For Research On International Economic Relations, 2001)
4. Balco Employee’s Union V. Union of India. (2017, Jan 11). Retrieved March 19, 2020, from
https://phdessay.com/balco-employees-union-v-union-of-india/.
5. A critical analysis of the BALCO case by Taruna Jain.