SC stays order on Sardar Sarovar bonds

State's petition challenging HC striking down law on premature redemption to be heard next in July

The Supreme Court has granted interim relief to Sardar Sarovar Narmada Nigam (SSNNL) and its parent entity, the Gujarat government, staying a Gujarat high court order in the deep discount bonds case.

The move might mean the wait for hundreds of investors --including several provident funds, wealthy and small investors --could continue for months.

In 2008, the Gujarat government had got enacted the Sardar Sarovar Narmada Nigam Ltd (Conferment of Power to Redeem Bonds) Act. This enabled SSNNL to redeem bonds five years ahead of schedule for Rs 50,000, less than half the maturity value of Rs 111,000.

The HC order in January had declared this Act unconstitutional. It had raised hopes that at least a section of investors could move for recovery of the money due. In an order on Friday, the apex court agreed to hear the appeal staying the HC order and posted the matter to July.

Udit Gupta, counsel for one of the bondholders, who had appeared in the matter on Friday, said: “Bondholders are also filing a petition in the matter.” They're also aggrieved by certain conditions in the HC order, this newspaper reported last month.

SSNNL had argued that the HC's application of law was in error. The latter, it said, ought to have appreciated “that the encroachment, if any, into the field already occupied by any central legislation is only incidental, which ought to be ignored, when the purpose of the Act, in pith and substance, is to legislate only with respect to the public debt of the state of Gujarat and for the purposes of better economic and social planning...the only objective was to reduce the public debt.”

Senior corporate lawyer Arvind Datar represented the company. Mukul Rohatgi, the Union attorney general, appeared for the state government.

SSNNL, fully owned by the state, had issued a little over 700,000 deep discount bonds in 1994. These were to mature in 2014 and would have resulted in a payout of a little over Rs 7,000 crore at the face value of Rs 111,000. Under the conditions in the prospectus, these were redeemable at the option of the holder at the end of the seventh, 11th and 15th years, commencing from 1993, for Rs 12,500, Rs 25,000 and Rs 50,000 at the end of respective dates. The bonds were listed in 10 stock exchanges.

In March 2008, the state promulgated the controversial law, whereby powers were conferred on the company to redeem the bonds, notwithstanding anything contained in the conditions relating to redemption in the prospectus. On November 3, 2008, when the SSNNL board cleared the premature redemption, there were 669,000 bonds in question. Of this, 129,841 investors in Gujarat were holding 170,462. And, 279,335 investors outside Gujarat had 498,909 of the bonds.

Cases challenging the move were filed in courts across the country. In 2013, the SC had directed the HC to hear the matter expeditiously.