Constitution

No SSNL-ing out of this security

Kalyan Janta Sahakari Bank Ltd. v. State of Gujarat and ors.

15.01.2016

The Sardar Sarovar Narmada Nigam Limited (Conferment of Power to Redeem Bonds) Act, 2008 being held invalid may bring rejoicing to those left feeling shortchanged by the government’s decision to prematurely pay off the bonds, but the Court’s deliberation was seemingly anything but along commercial lines. Discussing the subjects under the State and Concurrent lists of the Constitution, the Court was of the opinion that though the State Legislature enacted a law which was in ‘pith and substance’ within the legislative field earmarked for it, enacting such competent law the same encroached upon law made by the Union Legislature. Such encroachment being neither incidental nor negligible the Act of 2008 was ‘repugnant’. Gujarat’s Act of 2008 was found to alter contractual terms and conditions between a company and its investors. Thus, laws in conflict with the Act of 2008 were the Securities Contract (Regulation) Act, 1956, Security Exchange Board of India Act, 1992 and Indian Companies Act, 1956.

SSNL had issued (very) deep discounted bonds in 1993, backed by State guarantee, for Rs.3,600 – with a redemption value of Rs.1,11,000 after 20 years. With liability on the undertaking looming to over Rs.7,000 crore, the 2008 Act was introduced by the State government to reduce purported interest and redeem the bonds prematurely – reducing nearly by half its payout. Despite nulling the Act, the Court’s order is suspended pending opportunity of appeal before the Supreme Court.

Doctrine of pith and substance

Relevant

Vijay Kumar Sharma Vs State of Karnataka MANU/SC/0368/1990
G.P. Stewart Vs B.K. Roy Chaudhury MANU/WB/0202/1939
Seventh Schedule Constitution Act

Tags : Ssnl premature payment bond

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