Several bond holders, including some institutions, are planning to move Supreme Court challenging a Gujarat High Court decision on deep discount bonds (DDBs) of Sardar Sarovar Narmada Nigam (SSNNL). Though the Gujarat High Court recently struck down the Sardar Sarovar Narmada Nigam Limited (Conferment of Power to Redeem Bonds) Act, 2008, whose constitutional validity was questioned by bond holders, it has put many riders on the consequential relief for bond holders that many feel sends the matter into further legal tangles. “We are planning to challenge the decision,” said Maneesh Singhal, secretary, SSNNL Investors grievances redressal forum, one of the petitioners in the Gujarat High Court matter. Singhal said the several conditions put out in the judgement for payments due to bond holders, could prolong the matter for years. Apart from the forum, the 20-odd petitioners included private individuals, companies and institutions such as Kalyan Janta Sahakari Bank, Indian Oil Corporation Limited (Refineries Division), Employees Provident Funds, Indian Oil Corporation Limited Employees Superannuation Benefit Fund, India Tourism Development Corporation Limited, Staff Provident Fund Trust, Win-Medicare Limited Employees Provident Fund, Sunmarg Securities Private Limited, Maharashtra State Electricity Board’s Contributory Provident Fund and Hotel Janpath Employees Provident Fund. Several of these petitioners had also prayed to the court to provide financial relief in addition to deciding on the legality of the law. In its order on January 15, the high court said: “Though we have held the legislation to be unconstitutional, we cannot grant the consequential relief of paying the loss or damages as prayed for, because it would require leading of evidence and such prayer cannot be granted in writ jurisdiction.”
Timeline: Long and winding road March, 1988: Incorporation of Sardar Sarovar Narmada Nigam Limited November 1993: Issued non-convertible bonds and Deep Discount Bonds. The transaction was guaranteed by the State of Gujarat 2004: SSNL called special general body meeting of all bondholders seeking consent for reduction of interest rates and premature redemption. However, the bondholders reject the proposal January 2008: DDBs (Deep Discount Bonds) were traded at a high of Rs 59,050 March 08: The Gujarat Legislature enacted Sardar Sarovar Narmada Nigam Limited (Conferment of Power of Redeem Bonds) Act, 2008 November 2008: SSNNL Board clears premature redemption January 2009: Redemption of bonds commenced 2008-2009: Several petitions filed across country; Supreme court also moved December, 2013: Supreme Court directed that all the matters shall be decided by Gujarat High Court September-October 2015: Final Hearing in Gujarat High Court January 2016: High court holds 2008 law unconstitutional Source: case files
The bench of Jayant Patel and N V Anjaria held that bondholders have to file a separate civil suit which will examine the aspects of benefits realized or possible to be realized but for the premature redemption of the Bonds and arrive at the sums due.
The court also further said if the bondholders had already received the proceeds of premature redemption enabled by the scrapped act, they would be able to file the civil suit only if they had recorded their protests.
These conditions have put a question mark over the status of over four lakh investors who were holding these bonds, when SSNNL's board decided to redeem these five years before maturity at less than half the face value.
Even the investors' forum, which has about 400 members, is not fully representative of all these bondholders. "Several investors received the redemptions in their bank account directly. How could they have registered their protests?" asked Singhal.
Singhal and the forum had successfully resisted the company's attempt to redeem prematurely once in 2004.
There are also cases of investors who tendered their bonds after the original maturity date of January 2014. "How could these people have registered their protests?" asked another Mumbai-based investor aware of the case.
Experts feel making each person affected by the law a petitioner is impractical and unreasonable. JN Gupta, former Sebi official and founder of Stakeholders Empowerment Services, a proxy firm said, " When a law is held illegal, it cannot become legal for those who did not oppose it."
The bonds, which were issued at Rs 3,600 was listed in some 10 stock exchanges and was trading as high as Rs 59,050 a piece in the secondary market before the company announced premature redemption. Daily volumes in terms of number of bonds traded were in two digits on most days on BSE, according to data filed by Sebi before courts.
Guaranteed by the state government, It was seen as a risk free investment and several provident funds, which look for long term investments, had bought heavily. For several institutions, which bought in secondary market, there is also a capital loss in addition to the interest loss.
While these institutions, who are already before the court, have a better chance of getting compensation having registered protests, even they are likely to move Supreme court, lawyers hinted. "Why should we move a civil suit now and wait for five more years? Who will bear the costs?" asked a lawyer who represented one of the institutions. "The court has hit both sides. This is no victory for investors," he added.
There are also some investors who are still holding the bonds.
Delhi-based Sangeeta Wadhwa, who has four of these bonds said she had reached out to office of MCS, the registry of SSNNL in Ahmedabad after the maturity. "They asked me to surrender the original bond alongwith redemption forms.
But, they said you will get only Rs 50,000. Why should I take less than the maturity amount? So, I did not proceed," she said.
Unofficial estimates say there are about eight per cent of the total bond holders would fall in this category. An email sent to MCS seeking details of the number and amount of bonds redeemed so far did not elicit any response.
Virender Jain, president, Midas Touch Investor Association., who used to receive several complaints when he was running an investor helpline, said investors have a good case to challenge the decision. "Since the consequential relief has not been granted, To that extent, their prayer stands dismissed. They should look into this (appeal). "
Jain said the actions of the company and Gujarat government, which sought to change the terms midway amounted to cheating. "Interest rates were very high, when the bonds were floated. If the revised terms of redemption had been made public at that time, the company would not have raised this sum in the first place."
Therefore, he argued, it was only fair that bondholders are given a pro-rata compensation.
Investors said that the terms of the bond implied an annual return of 18.92 per cent and they should be compensated for their losses on this basis. However, since the principal amount has already been given back in many cases, the exact amount of compensation has also become a contentious issue.
In its submissions before the Bombay High Court in 2009, Sebi had supported the bondholders by holding SSNNL and Gujarat government responsible. The regulator said the Gujarat government, which was a guarantor to the issue cannot renege on its guarantee unilaterally. "The conduct of the public sector company has a demonstration effect in the market? Use of legislation to renege private contract erodes confidence and credibility in government agencies. If all participants renege contracts in a similar fashion, there would be no market," Sebi said in its affidavit.
An email sent to officials at SSNNL seeking comments and details on their next course of action on Thursday did not elicit any response.
SSNNL, fully owned by the Gujarat State government, had issued over seven lakh DDBs in 1994. The bonds, which were to mature in 2014, would have resulted in a pay out of over Rs 7,000 crore at the face value of Rs 1,11,000 a piece.
Under the conditions mentioned in the Prospectus, the Bonds were redeemable at the option of the Bond-holder at the end of 7th, 11th and 15th years commencing from 1993, for Rs 12,500, Rs 25,000 and Rs.50,000 at the end of respective dates.
More than 700,000 deep discount bonds issued to the public as above and they were listed in 10 Stock Exchanges across the country.
On 29th March, 2008, the State of Gujarat promulgated the controversial law, whereby, the powers were conferred on the company to redeem the Bonds notwithstanding anything contained in the conditions relating to redemption of Bonds in the Prospectus.
On November 3, 2008, when SSNNL board cleared the premature redemption, 6.69 lakh bonds were outstanding. Of this, 1,29,841 investors in Gujarat were holding 170,462 DDBs, while 2,79,335 investors outside Gujarat had 498,909 DDBs.
Cases challenging the move were filed in several courts across the country.
In 2013, the Supreme Court had directed the investors to the Gujarat High court to hear the matter expeditely and take a decision on merits.